Tunneling, propping, and expropriation: evidence from connected party transactions in Hong Kong

Stephen Y L CHEUNG, P. Raghavendra Rau*, Aristotelis STOURAITIS

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

388 Citations (Scopus)

Abstract

We examine a sample of connected transactions between Hong Kong listed companies and their controlling shareholders. We address three questions: What types of connected transactions lead to expropriation of minority shareholders? Which firms are more likely to expropriate? Does the market anticipate the expropriation by firms? On average, firms announcing connected transactions earn significant negative excess returns, significantly lower than firms announcing similar arm's length transactions. We find limited evidence that firms undertaking connected transactions trade at discounted valuations prior to the expropriation, suggesting that investors cannot predict expropriation and revalue firms only when expropriation does occur.

Original languageEnglish
Pages (from-to)343-386
Number of pages44
JournalJournal of Financial Economics
Volume82
Issue number2
DOIs
Publication statusPublished - Nov 2006

Scopus Subject Areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

User-Defined Keywords

  • Connected transactions
  • Expropriation
  • International corporate governance
  • Legal systems
  • Propping
  • Pyramids
  • Tunneling

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