Publication Type

Journal Article

Publication Date

1-2015

Abstract

In this paper, we investigate the problem of controlling shareholder Non-Operational Fund Occupancy (NOFO) in China, where controlling shareholders directly take funds away from listed firms without matching business transactions. The NOFO problem was an evident and widely used tunneling activity in China and was identified by the securities market regulators. Unlike previous literature that used indirect measures of tunneling, we directly collect the actual amounts of NOFO from mandated disclosures and utilize this direct measure of tunneling in a series of empirical tests. First, we examine and find that various mechanisms such as ownership structure, corporate governance and institutional environments could restrain tunneling activities. Second, we find significantly positive market reactions to regulations that aimed to solve the NOFO problem. Third, we find evidence that the operating performance and valuation of firms with a NOFO problem improved after the regulations went into effect. Our study sheds light on the severe issue of minority shareholder expropriation and the effectiveness of regulators' policy to remedy the tunneling problem.

Keywords

Tunneling, Non-Operational Fund Occupancy, Large shareholders, China

Discipline

Accounting | Business Administration, Management, and Operations

Research Areas

Accounting Information System

Publication

Journal of Corporate Finance

Volume

32

First Page

295

Last Page

311

ISSN

0929-1199

Identifier

10.1016/j.jcorpfin.2014.10.011

Publisher

Elsevier

Additional URL

https://doi.org/10.1016/j.jcorpfin.2014.10.011

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