Research On Company Performance’s Effect On Cash Tunneling By Controlling Shareholders

The expropriation of minority shareholders by controlling shareholders is a popularquestion in corporate governance all over the world, and the cash tunneling is more seriousin the company, of which ownership structure is concentrated. While the ownershipstructure is widely concentrated in China’s listed companies, with the superiority in equity,the controlling shareholder could expropriate the listed company’s funds in a variety ofways, resulting in a shortage of company’s funds, which is not conducive to the company’sfuture development, and also affecting the stability of the entire market. But the controllingshareholders don’t expropriate the company’s funds all the time, sometimes they transferresources to the company, which is a kind of behavior of propping. Although the directionof propping and tunneling is opposite, they are all behaviors of expropriation bycontrolling shareholders, used to maximize the benefits in a long time. The ultimate aim ofthe controlling shareholders is to gain Private Benefit of Control (PBC), and the choice ofpropping and tunneling has a certain relationship with the listed company’s financialperformance.With normative research and empirical research, starting from the non-business fundsoccupied, the research is to find out the relationship between the listed company’s financialperformance and the cash tunneling by the controlling shareholders. The results show that:the cash tunneling by the controlling shareholders varies with the company’s financialperformance. When the financial performance is good, the better financial performance oflisted companies, the more cash tunneling by the controlling shareholder, which is thebehavior of tunneling; When the company’s financial performance is in general, the cashtunneling by the controlling shareholder is negatively correlated with the firm financialperformance, which is the behavior of propping; When a company’s financial performancefalls below a certain level, the cash tunneling by the controlling shareholder is positivelycorrelated with corporate financial performance, which is the behavior of tunneling. Inaddition, the study also found that when a listed company has the potential qualification ofrights offering, the cash tunneling is reduced, showing the behavior of propping, which isused to achieve rights offering. Finally, according to the research results and consideringour institutional background and market environment, this article proposes some policyrecommendations on how to prevent and suppress cash tunneling by the controllingshareholders.