TY - JOUR
T1 - Tunneling, propping, and expropriation
T2 - evidence from connected party transactions in Hong Kong
AU - Cheung, Stephen Y L
AU - Rau, P. Raghavendra
AU - Stouraitis, Aristotelis
N1 - Funding Information:
We would like to thank an anonymous referee, Kee-Hong Bae, Dave Denis, Larry Lang, John McConnell, Bill Schwert, and seminar participants at the 2003 Australasian Finance and Banking Conference, Helsinki School of Economics, Athens University of Economics and Business, City University of Hong Kong, the Hong Kong Monetary Authority, the second International Symposium on Corporate Governance, Beijing, and the conference on Institutional Development in East Asia, Bangkok, for helpful comments. We would also like to thank Gloria Dong Jia Yin, Jing Lihua, Helen Tse Yuen Ching, Lynda Zhou Wen Qun, and especially Anita Wong Wai Shan for their excellent research assistance, and Maggie Cheung, Michelle Yeoh, and Christy Chung for inspiration. This study was supported by a grant from the Research Grants Council of the Hong Kong Special Administrative Region, China [Project no. 9040938 (CityU 1143/04 H)].
PY - 2006/11
Y1 - 2006/11
N2 - 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.
AB - 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.
KW - Connected transactions
KW - Expropriation
KW - International corporate governance
KW - Legal systems
KW - Propping
KW - Pyramids
KW - Tunneling
UR - http://www.scopus.com/inward/record.url?scp=33749127008&partnerID=8YFLogxK
U2 - 10.1016/j.jfineco.2004.08.012
DO - 10.1016/j.jfineco.2004.08.012
M3 - Journal article
AN - SCOPUS:33749127008
SN - 0304-405X
VL - 82
SP - 343
EP - 386
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 2
ER -