Corporate Governance, Interests Infringed And Investors' Identification

The Chinese economy is undergoing profound changes nowadays. At such a sensitive stage, the profits of small and medium-sized shareholders are expropriated by large ones due to the loophole of legal protection for investors, which plagues the newly born Chinese security market. Through various ways such as self-dealing transaction, the gigantic shareholders expropriate the dividend of small and medium-sized ones. Consequently, such practices have jeopardized the sound development of China's listed companies and the security market as a whole. However, It is difficult to identify whether a listed corporatione is tunnelled by its parent company because the investor can not reach in financial stament of the parent company. Therefore, this article has taken a new perspective to measure the extent of tunnelling. We look listed companies as parent companies, to measure there level of tunnelling on their subsidiary companies, and then to see whether the investors can indentify this kind of tunnelling and how they make a price.This paper based on the information of financial statement of Chinese listed companies.First, we analyzed the corporate governance mechanisms'impact on Tunneling Behavior of controlling shareholders. And then we used stepwise regression method to test the relationship among corporate governance, tunneling behavior and investor recognition. The results show that: (1) Corporate governance has a negative correlation to the degree of tunnelling. That indicates good corporate governance mechanism can regulate the operation of listed companies and place restrictions on the controlling shareholders. Thereby the governance mechanism will help protecte the interests of minority shareholders ; (2)To some extent, the investors can identify the tunnelling behavior of listed companies and then provide different price to them; (3) Compared to the companies which corporate governance mechanism is good, for companies with poor corporate governance, the negative correlation between investors's pricing and tunnelling is more apparent.