Tunneling And Propping:Based On The Perspective Of M&A Financing Risk

The scholars home and abroad had analyzed the ways and the risk of M&A financing based on the corporate governance theory. They focused on the agency problem instead of the relationship between majority shareholders and minority shareholders. They had also studied the conditions of tunneling and found some evidence of propping. In short, they studied M&A financing and tunneling separately, forming two different research direction. The article makes a profound analysis of tunneling and propping from the perspective of the risk of M&A financing.M&A financing is a part of the mergers and acquisitions, which is also one of the tunneling behaviors. The ways of M&A financing include debt financing, trust loans and targeted placement and there exist several kinds of financing risk as the indicator of the intrinsic value in M&A. The financing risk is so amazing that make me interested in exploring the tunneling and propping behaviors behind the M&A. So this paper analyzes these behaviors on the basis of stock price risk, issuing risk and financial risk.We can estimate the value of M&A and get the market value of the company by the volatility of share price. Acquiring firms take the risk of issuing the security and the financial risk, so some of them gain majority shareholder’s favor. There exists inverse announcement effect from Chinese listed firms with tunneling problems. The acceptance of the market play an important role for securities issuance and the action of tunneling is limited by financial risk.The ways of propping include debt guarantee, insider loans and asset injection.Tunneling and propping behaviors also widely exist in the western developed countries. However, they are in different forms because of the legal principles and legal framework, which need to have reasonable business purpose and be in line with the principle of "fairness". Common law countries establish a principle of "fairness", so the directors of the listed firms have the duty of care and the duty of loyalty. It relies on harsh punishment to protect the fair market and the interests of the minority shareholders.The article makes a profound analysis of tunneling and propping from the perspective of the risk of M&A financing. The tunneling problems in Chinese listed firms are so common that the listed firm becomes the funding facility of the majority shareholders. Since we can analyze the tunneling behaviors on the basis of stock price risk, issuing risk and financial risk. Finally we can put forward some policy suggestions from the experience of western developed countries.