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http://ssrn.com/abstract=1286887
 
 

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Tunneling and Propping Up: An Analysis of Related Party Transactions by Chinese Listed Companies


Stephen Yan-Leung Cheung


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

Lihua Jing


affiliation not provided to SSRN

Tong Lu


affiliation not provided to SSRN

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

September 20, 2009

Pacific-Basin Finance Journal, 17 (3), 372-393, 2009.

Abstract:     
We examine a sample of related party transactions between Chinese publicly listed firms and their controlling shareholders during 2001-2002. Minority shareholders in these firms seem to be subject to expropriation through tunneling but also gain from propping up. On balance, there is more tunneling than propping. Both types of firms have larger state ownership compared to the rest of the Chinese market but firms that are propped up are larger and have larger state ownership than firms subject to tunneling. Propped up firms are more likely to have foreign shareholders and to be cross-listed abroad compared to firms that are subject to tunneling. Propped up firms also tend to have worse operating performance in the fiscal year preceding the announcement of the related party transaction. Finally, we find that related party transactions representing tunneling are accompanied by significantly less information disclosure compared to related party transactions representing propping.

Number of Pages in PDF File: 52

Keywords: International corporate governance, China, Related party transactions, Tunneling, Propping

JEL Classification: G15, G34, K33

Accepted Paper Series


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Date posted: October 20, 2008 ; Last revised: September 14, 2012

Suggested Citation

Cheung, Stephen Yan-Leung and Jing, Lihua and Lu, Tong and Rau, P. Raghavendra and Stouraitis, Aris, Tunneling and Propping Up: An Analysis of Related Party Transactions by Chinese Listed Companies (September 20, 2009). Pacific-Basin Finance Journal, 17 (3), 372-393, 2009.. Available at SSRN: http://ssrn.com/abstract=1286887

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)
Lihua Jing
affiliation not provided to SSRN
Tong Lu
affiliation not provided to SSRN ( email )
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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