Can high speed railway curb tunneling? Evidence from the independent directors' monitoring effect in China

Linyi Zhang and Honghui Zhang

Pacific-Basin Finance Journal, 2021, vol. 67, issue C

Abstract: This study examines the effect of opening a high-speed railway on the tunneling behavior of controlling shareholders. It uses the direct connection between listed companies and independent directors facilitated by the advent of high-speed railways and finds that the opening of high-speed railways can facilitate independent director monitoring and curb controlling owners' tunneling. A cross-sectional analysis shows that this curbing effect is more pronounced for companies with long geographic distances between companies and their independent directors, for independent directors with financial expertise, and for independent directors who live far from companies. The findings also show that the curbing effect is more pronounced for companies that are facing environments with poor legal protection and imply that independent director monitoring and legal protection can be substitutive. These findings support the hypothesis that the opening of high-speed railways can facilitate independent director monitoring and curb controlling owners' tunneling, implying that transportation infrastructure development not only affects social welfare at the macro level but also has a governance effect at the micro level.

Keywords: High-speed railway; Tunneling; Independent directors; Monitoring; China (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:67:y:2021:i:c:s0927538x21000664

DOI: 10.1016/j.pacfin.2021.101559

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