A Study On The Effects Of Debt Contacts To Tunneling And Propping Of Large Shareholders

The increasing of debt makes the large shareholders have strong incentive to injure the benefits of a company, but a reasonable arrangement of debt contacts can inhibit the large shareholders'expropriation, even arouse their enthusiasm for propping, attaining the dual effect of protecting self-benefit and the benefits of minority shareholders. So this thesis researches on how different arrangements of debt contacts affect the large shareholders'behavior of tunneling and propping.First using of the asset-specific theory to explain tunneling and propping, this paper concludes that tunneling may injure the benefits of creditors, so they have incentive to supervise large shareholders'behavior. And then we divided Chinese listed companies into financial distress and non-distress companies for further study. When studying on tunneling of non-distress companies, we took a sample of the corporate control transfer events from 2002 to 2007 and used control premium excluding equity growth to measure tunneling. The results indicate that: firstly, the degree of tunneling is 46.61%; secondly, in non-distress companies, the higher the overall and short-term leverage, the greater the degree of tunneling, meanwhile debt from banks, suppliers and governments can deter tunneling. When studying on propping of distress companies, we took a sample of the listed companies declared special treatment from 2004 to 2006, and used the increment in CAR when special treatment declaration was made to measure propping. It is shown that: firstly, the degree of propping is 13.85%; secondly, in distress companies, the more the overall, short-term, bank and employee debt, the lower the degree of propping, thus debt from suppliers may foster large shareholders'behavior of propping.