Tunneling and propping up: An analysis of related party transactions by Chinese listed companies

Stephen Y L CHEUNG, Lihua Jing, Tong Lu, P. Raghavendra Rau*, Aristotelis STOURAITIS

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

152 Citations (Scopus)

Abstract

We examine a sample of related party transactions between Chinese publicly listed firms and their controlling shareholders during 2001-2002. Minority shareholders in these firms seem to be subject to expropriation through tunneling but also gain from propping up. On balance, there seems to be more tunneling than propping up. Both types of firms have larger state ownership compared to the rest of the Chinese market but firms that are propped up are larger and have larger state ownership than firms subject to tunneling. Propped up firms are more likely to have foreign shareholders and to be cross-listed abroad compared to firms that are subject to tunneling. Propped up firms also tend to have worse operating performance in the fiscal year preceding the announcement of the related party transaction. Finally, we find that related party transactions representing tunneling are accompanied by significantly less information disclosure compared to related party transactions representing propping.

Original languageEnglish
Pages (from-to)372-393
Number of pages22
JournalPacific Basin Finance Journal
Volume17
Issue number3
DOIs
Publication statusPublished - Jun 2009

Scopus Subject Areas

  • Finance
  • Economics and Econometrics

User-Defined Keywords

  • China
  • International corporate governance
  • Propping
  • Related party transactions
  • Tunneling

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