Majority Control, Tunneling And Investor Protection

In our country, the special corporate ownership in listed companies has created agency conflicts between controlling shareholder and minority shareholders. Because the market mechanisms to protect minority investors are not perfect and mechanisms to hold in controlling shareholder haven't been constructed fully, controlling shareholder often tunnel listed companies and minority shareholders through many kinds of ways. Among them, embezzling funds of listed companies is an outright mean which has impeded our country's securities market's development and becomes the main risk of listed companies.In essence, expropriation of minority shareholders by controlling sharehoder is relevant to the institutional environment of our economy besides the special splitting ownership structure in our country's listed companies. Since the evolvement of marketization in our country is through empowerment by central government to local government, our different local economic development appears non-equilibrium and differences are also significant including evolvement of marketization, government disturbance on enterprises and legal protection of minority shareholders, which will influence agency conflicts between controlling sharedholder and minority shareholders, and the quality of listed companies in different aspects.Agency conflicts between controlling shareholder and minority shareholders and potential expropriation of minority shareholders by controlling shareholder not only will influence listed company's quality, but also will affect the transparency of capital market including truth of information disclosure, which is the foundation of the development of securities market.As a media, the main role of external auditors is to transmit and safeguard of accounting information by assuring it, employed as monitors and bonding mechanisms to mitigate agency conflicts and limit controlling shareholder's abilities to hold up minority shareholders. But effective governing of external auditors depends on competitive environment of audit markets and valid monitoring by government.Using embezzling funds of listed companies by controlling shareholder as proxy for expropriation of minority shareholders from controlling shareholder, this dissertation first investigates the relationship between institutional environment and expropriation of minority shareholders by controlling shareholder. Institutional environment consists of evolvement marketization, government disturbance on firms and legal protection of minority investors. Then, we test the influence entrenchment of the controlling shareholder on the capital market's transparency through proxy the earnings quality for truth of information disclosure. Finally, we test the corporate governance role of external auditors in holding in the expropriation of minority shareholders by controlling shareholder and alleviating the agency conflicts between controlling shareholder and minority shareholders.We find that listed companies are more subject to the agency problem embedded in their embezzlement of listed company's funds, the lower of value relevance of accounting earnings and the more severely of listed company's earnings management. Our results also suggest significant improvement of institutional environment can mitigate controlling shareholder's embezzlement of funds. As to the governance role of external auditors, our results show that firms are less to employ high quality auditors when they are subject to the agency problem embedded in their embezzlement of listed company's funds. In addition, auditor will more likely set a'not clean'audit opinion.