Study On The Actual Controller’s Behavior Of Tunneling And Propping

Since1980s, after the excellent study of La-Ports et al.(1999), the viewpoint of concentrated ownership structure rises gradually and brings forward austere challenge to the viewpoint of dispersed ownership structure. As a result, the focus of study of corporate governance changes from conflict between controlling shareholders and minority shareholders to the hypothesis of concentrated ownership structure. Recently, two kinds of behaviors carried out by controlling shareholder, which are called "tunneling" and "propping", become one of the most interesting topics in governance study.Based on Friedman (2003) the multi-phase dynamic model, this paper introduces three parameters which are control ratio of actual controller, investment rate of return and proportion of shareholding by other major shareholders to extended its model, tried to explain the internal decision-making mechanism about the tunneling and propping carried out by actual controller of listed companies and analysis the reason and occasion about the tunneling and propping carried out by actual controller; And then this paper uses private listed companies in Chinese stock market as samples, also joins some other relevant variables to test the conclusions of the patulous model and relevant variables, and compare to discuss whether the factors which impact tunneling and propping are the same and whether the factors are consistent on impacting the two kinds of behaviors carried out by actual controller; finally, this paper obtains results which are consistent with basic conclusions of the patulous model and finds some problems of corporate governance in private listed companies of China.When there is lack of investors protection mechanisms, as a result of the private benefits of control, the actual controller usually transfers the resources and profits of listed companies, but in order to maintain its long-term private benefits of control, based on the motivation of avoiding loss or ensuring qualifying for rights issues, the actual controller will transfer the interests to listed company. when the listed company is going to bankrupt and lose qualification of refinancing, the actual controller will heavily plunder the resources of listed company.When the actual controller chooses to plunder listed company, the less investment rate of return of listed company which is at the bottom of the pyramid is, the more funds transferred out from listed company by actual controller, but when the actual controller choose to support the listed company, the less investment rate of return of listed company is, the more support the actual controller will give; the extent of tunneling carried out by actual controller has significant negative correlations with its proportion of ownership and debt ratio of listed company. It shows that some factors are not consistent in impacting tunneling and propping. The extent of tunneling carried out by actual controller has no significant relationship with the proportion of shareholding about other major shareholders and the proportion of independent directors. In the private listed company of China, it can be seen that effect of check and balance of major shareholders is not reflected, independent director system is not perfect, independent directors can not effectively exercise.