Does the market understand the ex ante risk of expropriation by controlling shareholders?

Yan-Leung Cheung, P. Raghavendra Rau*, Aris Stouraitis, Weiqiang Tan

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)


We examine how the market values operating assets in the presence of time-varying ex ante risk that these assets may be tunneled away. We analyze pairs of Chinese publicly listed firms and their non-listed parents and examine the market valuation of current assets (cash balances, trade receivables, receivables due from the controlling shareholders, inventories) and fixed assets on the publicly listed firm's balance sheet. Our results show that in periods when the risk of tunneling from the publicly listed firm to its controlling shareholder increases, operating assets that are easy to tunnel (cash and receivables due from the controlling shareholder) are valued at larger discounts, while operating assets that are not easy to tunnel (trade receivables, inventories, fixed assets) are not valued at such discounts.

Original languageEnglish
Article number101946
Number of pages22
JournalJournal of Corporate Finance
Early online date20 Apr 2021
Publication statusPublished - Jun 2021

Scopus Subject Areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

User-Defined Keywords

  • Cash holdings
  • Expropriation
  • International corporate governance
  • Intra-group loans
  • Operating assets
  • Pyramids
  • Tunneling


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