Dance with Shackles On? An Empirical Assessment of Investor Stewardship in China

Haochuan Gong & Chao Xi, “Dance with Shackles On? An Empirical Assessment of Investor Stewardship in China” (2021) 15 Tsinghua University Law Journal 111

The Chinese University of Hong Kong Faculty of Law Research Paper No. 2021-66

17 Pages Posted: 18 Nov 2021 Last revised: 6 Dec 2021

See all articles by Chao Xi

Chao Xi

The Chinese University of Hong Kong

Haochuan Gong

Jilin university

Date Written: November 10, 2021

Abstract

This empirical study of investor stewardship in China makes two contributions to the literature. First, our research evidences the heterogeneity of institutional investors in respect of their stewardship effect. Chinese mutual funds are associated with lower levels of tunneling in their investee firms. By contrast, Chinese private equity funds and Qualified Foreign Institutional Investors are not associated with reduced intensity of tunneling activities in a statistically significant manner. Second, our study highlights the impact that a series of Chinese regulatory restrictions on share transferability had on stewardship. These restrictions, introduced in the aftermath of the Chinese stock market crash in 2015, arguably impeded liquidity of institutional holdings and drove institutional investors away from holding substantive stakes in portfolio firms. This effect is most acutely felt after the regulatory restrictions culminated in 2017. During the 2017-2019 period, Chinese private equity funds were associated with intensified tunneling activities in their investee firms. Our research therefore presents evidence that general restrictions on share transferability had unintended counter-productive effect on investor stewardship in China.

Keywords: Stewardship, China

Suggested Citation

Xi, Chao and Gong, Haochuan, Dance with Shackles On? An Empirical Assessment of Investor Stewardship in China (November 10, 2021). Haochuan Gong & Chao Xi, “Dance with Shackles On? An Empirical Assessment of Investor Stewardship in China” (2021) 15 Tsinghua University Law Journal 111, The Chinese University of Hong Kong Faculty of Law Research Paper No. 2021-66, Available at SSRN: https://ssrn.com/abstract=3965294

Chao Xi (Contact Author)

The Chinese University of Hong Kong ( email )

Hong Kong
+ 852 2696 1142 (Phone)
+ 852 2994 2505 (Fax)

Haochuan Gong

Jilin university

China

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