The Research Of Ownership Structure And Characteristics Of Board Of Directors On Tunneling By The Major Shareholder

Researches through recent years have shown that in most countries, especially newly raised economies, the ownership structure is more concentrated than scattered; thus the new research interests for scholars have switched from the conflicting between management and shareholders to large and small shareholders. Even though China has started equity division reform since 2005, yet the phenomena of one group controlling most stocks is still observable: it is not rare to see the major shareholder tunneling the company. This is not only harmful to the growing of the company as well as the confidence of individual investors, it is also endangers the smoothly flow of China's capital market. So based on this argument, this paper will analysis the relationship between ownership structure and characteristics of board of directors with the major shareholder's tunneling.The first part of the paper has four sections to analysis existing literature on tunneling: theories; the definition of tunneling and how it is preformed; the relationship between ownership structure and tunneling; the relationship between characteristics of board of directors and tunneling. Then the paper introduces the current statues of tunneling in China's market as well as the reason behind it. Following that the paper takes data during 2010-2014 from 1072 companies in Shanghai-Shenzhen stock market A share stocks for analysis. The paper used fund occupancy rate as a major measurement for the major shareholder tunneling; another five variables are also taken into consideration about how they would influence on tunneling. Based on aforesaid analysis, two regression analyses are conducted to verify related hypothesis.The result shows that:the relationship between equity concentration and tunneling shows a negative correlation. In short, with the increase of the major shareholder's shares, the action of tunneling will decrease; the balance of shares among shareholders can control tunneling to some degree; the size of board of directors as well as the shares it controls have negative correlation with tunneling. So in conclusion, the size of board of directors as well as the amount of shares controlled by the group both controls tunneling. However, the ratio of independent directors has little to do with tunneling by the major shareholder, thus China's independent director system is inadequate and needs improvement. Finally, based on the conclusion, this paper puts forward some related policy suggestions; points out the restrictions of this article and explains the direction for further study.