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http://ssrn.com/abstract=1008780
 
 

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Tunneling, Propping, and Expropriation: Evidence from Connected Party Transactions in Hong Kong


Stephen Yan-Leung Cheung


City University of Hong Kong (CityUHK) - Department of Economics & Finance

P. Raghavendra Rau


University of Cambridge; UC Berkeley - Haas School of Business

Aris Stouraitis


Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences

May 1, 2004

HKIMR Working Paper No. 9/2004
EFA 2004 MAASTRICHT Conference Paper

Abstract:     
We examine a sample of 328 filings of "connected transactions" between Hong Kong listed companies and their controlling shareholders during 1998-2000. We address three questions: What types of connected transactions are likely to lead to expropriation of minority shareholders? Which firms are more likely to expropriate? Does the market anticipate the expropriation? On average, firms earn significant negative excess returns both around the initial announcement of the connected transactions (from -2.5 per cent for firms making cash payments to directors to -5.9 per cent for firms selling equity stakes to their controlling shareholders) and during the 12-month period following the announcement (from -7.2 per cent for firms acquiring assets from their substantial shareholders to -21.9 per cent for firms selling assets to them). Excess returns are significantly negatively related to percentage ownership by the controlling shareholder. They are also significantly negatively related to proxies for information disclosure. The likelihood of undertaking connected transactions is higher for firms whose ultimate owners can be traced to mainland China. Finally, we find limited evidence that the market anticipates the expropriation by discounting firms that undertake connected transactions.

Number of Pages in PDF File: 45

Keywords: International corporate governance, Legal systems, Expropriation, Connected transactions, Pyramids, Tunneling, Propping

JEL Classification: G15, G34, K33

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Date posted: August 23, 2007 ; Last revised: July 28, 2009

Suggested Citation

Cheung, Stephen Yan-Leung and Rau, P. Raghavendra and Stouraitis, Aris, Tunneling, Propping, and Expropriation: Evidence from Connected Party Transactions in Hong Kong (May 1, 2004). HKIMR Working Paper No. 9/2004; EFA 2004 MAASTRICHT Conference Paper. Available at SSRN: http://ssrn.com/abstract=1008780 or http://dx.doi.org/10.2139/ssrn.1008780

Contact Information

Stephen Yan-Leung Cheung
City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )
83 Tat Chee Avenue
Kowloon
Hong Kong
+852 2788 7960 (Phone)
+852 2788 8806 (Fax)
P. Raghavendra Rau (Contact Author)
University of Cambridge ( email )
Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)
HOME PAGE: http://www.jbs.cam.ac.uk/research/faculty/rau.html
UC Berkeley - Haas School of Business ( email )
Haas School of Business
545 Student Services Building
Berkeley, CA 94720
United States
3103626793 (Phone)
Aristotelis Stouraitis
Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences ( email )
Hong Kong
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