Environmental Uncertainty,Institutional Holdings And Tunneling

In the past few years,China has successfully transitioned from planned economy to socialist market economy,and it has achieved remarkable achievements.However,during the rapid development,China still has many problems like the backward legal environment and the lack of property rights protection mechanism,which in turn affects the operational efficiency of the capital market.In order to make up for the shortcomings of China’s property rights protection mechanism,China’s listed companies generally have major shareholders,namely controlling shareholders.However,in a company with a high concentration of equity,the major shareholder may also engage in the act of encroaching on the interests of small and medium-sized shareholders and tunneling listed companies for the purpose of seeking private profits.Moreover,the phenomenon of concentration of power among major shareholders is also very common,which makes the majority shareholder have a stronger incentive to short the listed company.In fact,the phenomenon that large shareholders use various methods to short-list listed companies is very common,and the exposure of listed companies’ tunneling events constantly reminds the capital market to strictly prevent tunneling activities to maintain the effective operation of the market.Until now,many scholars have conducted in-depth research on the factors concerning the tunneling of major shareholders,and they have obtained rich results.Although their research ideas may different,there is also a generally accepted view that major shareholders need certain conditions to implement tunneling.For major shareholders,their every move is subject to multi-faceted supervision,and the exposure of their opportunistic behavior will also bring severe punishment.Therefore,in real life,major shareholders often need to have the motivation to seek private profits through tunneling when the degree of information asymmetry is high,that is,the outside world cannot effectively monitor them.A large number of studies have also found many important factors affecting the tunneling of major shareholders based on the information asymmetry.However,as a common problem faced by listed companies,the information asymmetry caused by environmental uncertainty has not received sufficient attention from existing research.When listed companies face high environmental uncertainty,the degree of information asymmetry between listed companies and the outside market also increases,leading to the obvious opportunity for major shareholders to adopt opportunistic behavior.Then,in the case of high environmental uncertainty,will the major shareholders choose to conduct tunneling behavior to the listed company more arbitrarily? On the other hand,as an important “stabilizer” of the capital market,the role of institutional investors in regulating listed companies has been widely recognized by academics and practitioners.Then,when listed companies face high environmental uncertainty,can institutional investors still effectively play their supervisory role and curb the seizure of major shareholders?These questions are subject to an objective answer from the academia.In view of these questions,this paper takes China listed companies(from 2005 to 2016)of A-share non-financial industry as samples and conducts in-depth research on the correlation between environmental uncertainty,institutional holdings and tunneling through the combination of normative analysis and empirical testing.It mainly analyzes two questions:(1)How does environmental uncertainty affect tunneling?(2)What role does institutional investors play in the process of environmental uncertainty affecting the tunneling?On this basis,we will further examine:(1)Does the impact of environmental uncertainty on the tunneling of major shareholders have different effects depending on the nature of ownership?(2)How does CEO Duality affect the relationship between environmental uncertainty and tunneling?First of all,this paper summarizes the contents of the existing research to understand the status quo of the research more clearly.Secondly,based on the relevant basic theories and research results,we make logical analysis of the problems involved in the research,and put forward corresponding assumptions.Thirdly,we construct mathematical models based on existing research and use data to empirically test the research hypotheses.Finally,we draw the conclusions and inspirations according to the results of theoretical analysis and empirical tests.After theoretical analysis and empirical test,this paper finds that:With the increase of environmental uncertainty,the degree of tunneling of major shareholders is higher,and the higher the holdings of institutional investors,the weaker the environmental uncertainty on the tunneling of major shareholders.Further,the impact of environmental uncertainty on the tunneling of major shareholders is more obvious in state-owned listed companies;CEO duality can weaken the influence of environmental uncertainty on tunneling.The above research results show that when listed companies face high environmental uncertainty due to the increase of information asymmetry,the probability of large shareholders’ encroachment being discovered will be lower,thus increasing the tunneling of large shareholders to listed companies.However,institutional investors can use their expertise and investment experience to effectively monitor listed companies,thereby alleviating the information asymmetry caused by environmental uncertainty and restraining the tunneling behavior of major shareholders.Combined with the empirical evidence obtained from further analysis,the research results of this paper may provide useful reference for relevant departments to strengthen the supervision of listed companies,improve the legal system and promote the development of institutional investors.