Dialect connectedness and tunneling: evidence from China

Chen Song

International Journal of Emerging Markets, 2023, vol. 20, issue 2, 678-700

Abstract: Purpose - This study aims to examine the effects of dialect connectedness between the chairman and the chief executive officer (CEO) (DCCC) on the tunneling activities of controlling shareholders. Design/methodology/approach - This study uses abnormal related-party transactions (ARPT) as a proxy for tunneling activities and traces dialects of chairmen and CEOs based on the respective birthplace information. Baseline results are examined using a fixed-effects model. The results remain robust when using the instrumental variable approach, propensity score matching (PSM) technique, changing the measurement of tunneling and Heckman two-step selection model. Findings - The results show that DCCC reduces tunneling activities. This negative association is more pronounced for non-state-owned enterprises and firms whose chairmen and CEOs work in the respective hometowns. DCCC restrains tunneling activities through mechanisms by establishing an informal supervisory effect on CEOs because the CEOs fear reputational damage and strengthening cooperation between chairmen and CEOs. Further analyses suggest that this negative association is more significant when chairmen and CEOs are non-controlling shareholders, but the association is weakened during the coronavirus disease 2019 (COVID-19) crisis. Originality/value - As dialect is a carrier of culture, this study's results imply that cultural proximity can replace formal mechanisms to enhance corporate governance.

Keywords: Tunneling; Corporate governance; Culture; Dialect connectedness; G3; O3; Z1 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-10-2022-1627

DOI: 10.1108/IJOEM-10-2022-1627

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