Research On The Controlling Shareholders' Behaviors Of Tunneling And Propping In Listed Companies

The agency problem arising from the conflicts between the controlling shareholders and the non-controlling shareholders,has become the theme of corporate governance research now. Under this situation, scholars have made more research on the controlling shareholders'behaviors of tunneling. However, in recent years, some scholars found that the controlling shareholders not only tunnel resources out of firms, they have the motives to prop up firms using their own private resources, and their propensity to tunnel is correlated with the propensity to prop. Hence, it will be very helpful to recognize the essential relation between tunneling and propping and to provide the supervisory authorities with very useful references by studying on the factors which affect the controlling shareholders'behaviors of tunneling and propping.At first, this paper summarizes the related literatures, and then selects Chinese A-share listed companies in which had occurred related party M&A transactions in 1999-2004 to be the research samples. After that, the author defines and distinguishes the controlling shareholders'behaviors of tunneling and propping. Finally, this thesis does an empirical research on the factors which affect the controlling shareholders'behaviors of tunneling and propping using logistic regression models.The conclusions are as follows:First, on a relative lower share-percetage level, the largest shareholder's share-percentage has a positive correlation with the controlling shareholders'tunneling, and a negative correlation with propping. On a relative higher level, the largest shareholder's share-percentage affects both tunneling and propping significantly, the largest shareholder's share-percentage higher, the probability of the controlling shareholders'tunneling lower and propping higher. So, the higher share-percentage of the largest shareholder will helpful to reduce the controlling shareholders'behaviors of tunneling.Second, the firm's development and profitability have significant positive correlations with the controlling shareholders'tunneling, and significant negative correlations with the controlling shareholders'propping. It shows that the controlling shareholders tunnel the firms which have no doubt to go to bankruptcy, but also the"blue chips". Hence, it tells us the wide existence and complexity of the controlling shareholders'tunneling and propping.Third, the firm's debt ratio has a significant negative correlation with the controlling shareholders'tunneling, and a significant positive correlation with the controlling shareholders'propping. Hence, the firm's debt can restrict the controlling shareholders'behaviors of tunneling and push them to prop up the company.Forth, the firm's free cash flow (FCF) has a significant positive correlation with the controlling shareholders'tunneling, and a significant negative correlation with the controlling shareholders'propping. It shows that the controlling shareholders may expropriate the benefits of the non- controlling shareholders and lead to much bigger agency costs between the controlling and the non- controlling shareholders during the controlling shareholders'reduction of agency costs.