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
17 Pages Posted: 18 Nov 2021 Last revised: 6 Dec 2021
Date Written: November 10, 2021
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
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