An Empirical Research On The Effects Of QFII On Tunneling

QFII is short for Qualified Foreign Institutional Investor. QFII system is a professional qualification certification system that allows foreign institutional investors to perform domestic investment. Due to professional investment, experienced management and other advantages, mature foreign investment institutions are introduced by some growing industrialized countries to accelerate the progress of their capital market openness and improve the system construction. QFII system has been implemented in South Korea, Brazil, India and Taiwan successfully.By the end of2002, China Securities Regulatory Commission and the People’s Bank of China jointly issued the "Interim Provisions on Management of Qualified Foreign Institutional Investors in Securities Investment", which is the milestone of official introduction of the QFII system. During the last12years, the regulatory authorities of QFII access standards have been less rigorous, which facilitates the development and expansion of QFII. The investment amounts and investment scope of QFII have increased.In2012, the investment amount of QFII gained an additional50billion dollars, with a total investment amount of80billion dollars. As of March2014, China has261enrolled QFIIs. QFII has become China’s third largest investment institution, which is an important component of institutional investors, whose impact on China’s securities market is getting bigger.Institutional investors can effectively collect and screening information of listed companies, and has a professional investment management team, with a significant information advantage and professional advantage. Numerous studies show that institutional investors can effectively alleviate the conflict of interest between principals and agents, which plays one of the key factors affecting corporate governance. With financial strength and investment experience, QFII has the above advantages. As the investment amount increased and investment scope expanded, QFII has the motives and conditions to intervene corporate governance. When the controlling shareholder performs tunneling, the conflict of interest between shareholder and QFII takes shape. Will QFII restricts the controlling shareholder’s misconduct through intervention of corporate governance to maintain its own interests? Based on the above issues, this paper conducts an empirical research on the effects of QFII on tunneling.This article includes the following six parts. The first part is an introduction discusses the background and significance of this paper, research approaches and frameworks, research methods and research innovation. The second part is the literature review, which summarizes the foreign and domestic research on QFII and tunneling in four aspects and makes a brief review of the present research. The third part is the theoretical analysis and research hypotheses. This part firstly defines QFII, controlling shareholder and tunneling, and elaborates theoretical basis of QFIFs affection on tunneling, which includes the principal-agent theory, conflict theory and the cost-benefit theory. Then describes the mechanism of QFII’s affection on tunneling, and accordingly puts forward the hypotheses of this paper. The fourth part is research design. Firstly, we state data sources and screening method. Then explain the variables selection methods. Last, according to research hypothesis, selected variables and present correlational research, we construct the research model. The fifth part is empirical test, which contains descriptive statistical analysis, correlation analysis and regression analysis to verify the hypotheses of QFII’s affection on tunneling. To ensure the reliability of research results, we conduct robustness test and endogenous problem test. The last part is conclusions, recommendations and outlook. According to the results of empirical analysis, we summarize the conclusions and put forward some recommendations accordingly. Finally, we illustrate the limitations and other deficiencies existed in this research and future outlook.Contribution of this paper is mainly reflected in the following two points:First, research approaches are innovative. Most domestic researches are mainly restricted to QFII system specification research, less empirical researches on QFII’s corporate governance effectiveness. Based on the angle of the degree of QFII holdings and ability to restrict the largest shareholder as a starting point, this paper mainly empirically researches on how QFII holdings change the capital structure and intervene corporate governance, further affecting the controlling shareholder tunneling behavior. Second, the measurement of QFII’s effects on corporate governance is different. This paper puts on an empirical research on whether QFII can restrict tunneling to study QFII’s corporate governance effectiveness, which is a breakthrough and expands researches on QFII.