Corporate Governance And Tunneling And Propping Of Major Shareholders

Today, with the process of global economic integration increasingly accelerating, the development of capital market is playing an increasingly important role on a country's economic growth.A large number of studies have shown that the protect of investors, especially medium and small investors, is the basic of healthy development of the capital market. Because it affects not only the stability and development of financial markets, but also by influencing the financial markets and ultimately have a major impact on the real economy (Beck et.al,2000).The huge impact on the global capital markets and the real economy of U.S.financial tsunami outbroke in 2008 fully confirms this view.In emerging markets, even the most countries of the world, the protection of investors in capital markets mainly reflected the conflicts of interest and coordination issues between major shareholders,or their spokesmen, and small shareholders of listed companies, which is named the second generation of corporate governance issues.The concepts of "Tunneling" and "Propping" is the classic description of problem of corporate governance.The proposed concepts of "Tunneling" and "Propping" led to a large number of theoretical and empirical research in the home and abroad, and provided a wealth of perspectives and evidence to understand corporate governance and investor protection. In these studies,there are two interrelated issues are particularly important. The first is how to measure or discover "Tunneling" or "Propping" of large shareholders; Second, what factors motivate or constrain the major shareholders'"Tunneling" and "Propping", resulting in varying degrees of protection of the interests of investors.So far, there is extensive literature conducted on corporate governance and investor protection issues in-depth, but unfortunately, there is still little literature combined with these two issues in deep and systematic study. For this reason, this paper attempts to use a large sample of listed companies in China 2002-2008,by looking at related party transactions with the performance of listed companies, profit transfers, transaction costs and earnings quality, these different aspects of the economic consequences of the empirical relationship, to completely characterize the major shareholders' motive of On this basis, combined with the special micro-macro-institutional environment and governance characteristics of China's listed companies, this paper will interpret and analyze the motives and consequences of the major shareholders'"Tunneling" and "Propping" systematically.The main conclusions of this paper are:first, the largest shareholder and its affiliated companies are the main target of related-party transactions of listed companies in China, and those connected transactions dominated the economic consequences;second, equity concentration, degree of equity and regional balance of market-oriented and other internal and external governance are major factors in the formation of related-party transactions;third, related party transactions of listed companies also have "Tunneling" or "Propping" effects,demonstrate the complexity of the economic consequences, which embodied in that a variety of related-party transactions on the one hand helped to reduce transaction costs and significantly promote the company's accounting performance, on the other hand had become an important way for major shareholders to transfer profits from listed companies.At the same time,related-party transactions can't bring a corresponding market evaluation even if improve the performance of accounting; Fourth, the government-controlled, equity concentration and checks and balances, independent directors, the Audit Committee and regional mercerization process of internal and external governance factors and their interactions, show a significant impact on the effects of "Tunneling" or "Propping" of the related-party transactions in varying degrees;fifth, generally speaking, the internal governance structure and the external governance environment appears to be an alternative relationship in the process that affect the performance of formation and economic consequences of related-party transactions.This paper maybe provides the following potential contributions:first, differently from that the previous analysis focused on the motives of major shareholders from the internal governance structure, this article study on the motivation of "Tunneling" or "Propping" of major shareholders from both the internal governance structure and the external governance environment, and look at the internal and external governance factors in affecting the mechanism of interaction between shareholders of motivation, which further enriched the corporate governance and investor protection of the domestic and foreign research results; second, this paper focuses on the research of the related-party transactions, describes the economic consequences of related-party transactions, examines "Tunneling" or "Propping" of major shareholders in four different aspects and levels directly and effectively, the performance of the company, transfer pricing, transaction costs, and earnings quality, which can make up for defects the literature of substantial shareholders is too simple or one-sided portrayal, too indirect; third, this paper provides a meaningful international comparison reference for studies of state-owned enterprises in emerging markets and corporate governance research group;Fourth, theoretical and empirical research findings of this paper will provide a meaningful reference to improve the enterprise group of China's relevant departments on internal operations, standardize the listed companies related transactions, and protect the interests of small and medium investors.