Title

Causes and Consequences of Corporate Assets Exchange by China’s Listed Companies

Publication Type

Journal Article

Publication Date

2-2014

Abstract

China's listed companies often exchange corporate assets with their parent companies. We find that listed companies that have been incompletely restructured from former state-owned enterprises and in sound financial condition tend to exchange higher quality assets for lower quality assets (i.e., tunneling). However, when there is a need to avoid reporting a loss and to raise additional capital, listed companies tend to exchange lower quality assets for higher quality assets (i.e., propping). We also find that the market reacts indifferently to asset exchange announcements. Finally, we find asset exchanges motivated by a tunneling (propping) incentive to be associated with poorer (improved) post-exchange stock performance and financial performance. In summary, this study contributes to the corporate asset literature by providing two new incentives: tunneling and propping.

Keywords

Asset exchange, Tunneling, Propping

Discipline

Accounting

Publication

International Review of Economics and Finance

Volume

31

First Page

205–217

ISSN

1059-0560

Identifier

10.1016/j.iref.2014.02.004

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