Do independent directors restrain controlling shareholders’ tunneling? Evidence from a natural experiment in China

Min Gong, Yanan Wang and Xiandong Yang

Economic Modelling, 2021, vol. 94, issue C, 548-559

Abstract: In response to corporate scandals in the early 2000s, the China Securities Regulatory Commission introduced a new reform requiring an increase in board independence. We find a significant decrease in tunneling by controlling shareholders for firms that are affected by this regulation, compared with firms that are exempt from it. The new added independent directors have an exclusively monitoring effect on controlling shareholders’ tunneling behaviors in state-owned enterprises. Furthermore, the decrease in tunneling behaviors is particularly pronounced in the subset of affected firms with less concentrated equity ownership, worse audit quality, and lower information processing costs. Our results suggest that controlling shareholders reduce the expropriation of minority shareholders under the monitoring of independent directors.

Keywords: Tunneling; Board independence; Corporate governance; Board regulations (search for similar items in EconPapers)
JEL-codes: G34 G38 K22 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:94:y:2021:i:c:p:548-559

DOI: 10.1016/j.econmod.2020.01.023

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