Corporate governance and tunneling: Empirical evidence from China
Lei Gao and
Gerhard Kling ()
Pacific-Basin Finance Journal, 2008, vol. 16, issue 5, 591-605
We analyze asset appropriation by principal shareholders in China and uncover the following relationships: (1) outsiders in the board of directors, audit without non-clean opinion, and dispersed ownership prevent operational tunneling; (2) belonging to a business group and issuing B or H share exacerbate asset appropriation. Institutional ownership does not prevent the embezzlement of assets and is endogenous, as investors select companies with good governance. Besides governance mechanisms, stock characteristics matter in that larger firms exhibit less tunneling, whereas highly leveraged firms experience the opposite. We find a decline of tunneling in 2001, which might be due to economic reforms.
Keywords: Corporate; governance; China; Operational; tunneling (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:16:y:2008:i:5:p:591-605
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