Tunneling And Propping Of Controlling Shareholders

The conflicts of interest between the controlling shareholders and the non-controlling shareholders, has become the theme of corporate governance research now (La Portal et al.,1999), and cause the wide attention of many scholars at home and abroad. Under this situation, the foreign scholars on the "tunneling" the theoretical and empirical research starts earlier and has been already mature, but our research in this area is still in its infancy. In recent years, some scholars found that the controlling shareholders not only tunnel resources out of firms, but also they have the motives to prop up firms using their own private resources under special circumstances. In the listed companies in China, because the only big shareholders,"a" special equity structure of the existing shareholders, the phenomenon controlling shareholders expropriate minority shareholders through tunneling is very common, should be given more attention.Most of listed company in China are restructured by the state-owned enterprise, and are closely related to the former parent company, this particular system is context frequently huge amounts of related transaction of listed companies in China, accompanied by transmission of interest between the controlling shareholder and listed companies. As an emerging-market country, in all aspects, our system is not perfect enough. For example, weak protection of the legal interests of minority shareholders, high concentration of listed companies, a lot of State-controlled companies, some controlling shareholders or even master the effective control of the company, which created favorable conditions for controlling shareholders to seek personal gain, so that controlling shareholders use their control to effect related party transactions, occupy of company resources.This paper system summarizes the related literatures at home and abroad, On the basis of hypotheses and models of previous scholars, considering the particularity of China’s capital market, this article use theory research and empirical research of method, related party transactions between the controlling shareholder and listed companies as a test object, survey the tunneling and propping in the same market, and compare the characteristics of two kinds of trading companies, Open up a new area of research of tunneling and propping.We examine a sample of related party transactions between Chinese publicly listed firms and their controlling shareholders during2008-2010. Minority shareholders in these firms seem to be subject to expropriation through tunneling but also gain from propping up. On balance, there seems to be more tunneling than propping. Firms that are tunneled are larger and have larger state ownership than firms subject to propping up. Propped up firms are more likely to have foreign shareholders and to be cross-listed abroad compared to firms that are subject to tunneling. Propped up firms also tend to have worse operating performance in the fiscal year preceding the announcement of the related party transaction. Finally, we find that related party transactions representing tunneling are accompanied by significantly less information disclosure compared to related party transactions representing propping.The specific framework of the article:Chapter1:Introduction. This part focuses on the background and significance of this research, and then presents ideas and research methods, as well as the content of the article and the main innovative points.Chapter2:Concept definition and literature review. Define the main concepts involved in this article, and summary related research on the tunneling and propping both from domestic and foreign.Chapter3:Theoretical analysis. Four aspects of theoretical basis have been reviewed in this part:the principal-agent theory, information asymmetry theory, investor protection and transaction cost theory.Chapter4:Research design. This part includes data sources, data filtering, as well as the construction of models and make assumptions. Chapter5:Empirical results and analysis. This part use descriptive statistics and multiple regression methods to analysis the characteristics of the companies that occurred different types of related party transactions, their effects on company value and the restricting factors of tunneling and propping.Chapter6:Research findings and inspiration. This part combined with the preceding theory analysis and empirical research, draws appropriate conclusions and making recommendations to inhibit tunneling and propping, finally, pointed out article’s shortcomings and prospects for follow-up studies.