Tunneling and Value Relevance of Financial Reports: Evidence from Hong Kong

Y. Xie () and H. Lee (Correspondence Author) ()
Additional contact information
Y. Xie: Department of Accounting, Hong Kong Shue Yan University 10 Wai Tsui Crescent, Braemar Hill Road, North Point, HONG KONG
H. Lee (Correspondence Author): Department of Accounting, Hong Kong Shue Yan University 10 Wai Tsui Crescent, Braemar Hill Road, North Point, HONG KONG

Review of Economics & Finance, 2018, vol. 11, 67-82

Abstract: Using a sample of Hong Kong listed firms that announced related party transactions, this paper examines the informativeness of financial reports prior to the announcements of related party transactions. We find that the value relevance of financial reports is higher for firms undertaking asset or equity tunneling transactions than for firms undertaking other types of related party transactions in the period prior to the announcement of transactions. Given firms with forthcoming tunneling transactions, financial reports are more value relevant for firms with more conservative accounting than for firms with less conservative accounting. Further, the association between conservatism and entrenchment effect is stronger for firms with forthcoming tunneling transactions. Collectively, the evidence suggests that firms adopt conservative accounting to increase the informativeness of financial reports prior to the tunneling transactions, which assists controlling shareholders in expropriating wealth from the minority shareholders from the tunneling transactions.

Keywords: Financial statement informativeness; Conservatism; Related party transaction; Connected transaction (search for similar items in EconPapers)
JEL-codes: G32 G34 M41 (search for similar items in EconPapers)
Date: 2018
Note: The authors are thankful to anonymous reviewers and the Editor (Dr. H. Carlson) for their valuable comments.
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.bapress.ca/ref/ref-article/1923-7529-2018-01-67-16.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bap:journl:180106

Ordering information: This journal article can be ordered from
17 Alton Towers Circle, Unit 101 Toronto, ON, M1V3L8, Canada

Access Statistics for this article

Review of Economics & Finance is currently edited by H. Carlson

More articles in Review of Economics & Finance from Better Advances Press, Canada 17 Alton Towers Circle, Unit 101 Toronto, ON, M1V3L8, Canada.
Bibliographic data for series maintained by Carlson ( this e-mail address is bad, please contact ).