Public Governance and Tunneling: Evidence from a Quasi-Experiment in China

22 Pages Posted: 7 Sep 2023

See all articles by Xiaofang Ma

Xiaofang Ma

Zhejiang University of Technology

Wenming Wang

Zhejiang University

Gaoguang Zhou

Hong Kong Baptist University (HKBU) - Department of Accountancy & Law

Jun Chen

Zhejiang University

Date Written: March 1, 2023

Abstract

Purpose
This study aims to take advantage of the unprecedented anti-corruption campaign launched in China in December 2012 and examine the effect of improved public governance on tunneling.

Design/methodology/approach
This study uses a sample of Shanghai and Shenzhen Stock Exchange listed companies from 2010 to 2014 and conduct regression analyses to investigate the effect of improved public governance attributed to the anti-corruption campaign on tunneling.

Findings
This study finds that the level of tunneling decreased significantly after the anti-corruption campaign, suggesting that increased public governance effectively curbs tunneling. Cross-sectional results show that this mitigating effect is more pronounced for non-SOE firms, especially non-SOE firms with political connections, firms audited by non-Big 8 auditors, firms with a large divergence between control rights and cash flow rights and firms located in areas with lower marketization.

Practical implications
This study highlights the importance of anti-corruption initiatives in improving public governance and in turn reducing tunneling. This study provides important implications for many other emerging economies to improve public governance.

Originality/value
This study contributes to the literature on the role of public governance in constraining corporate agency problems and advances the understanding of the economic consequences of China's anti-corruption campaign in the context of tunneling.

Keywords: Anti-corruption, Public governance, Tunneling

JEL Classification: D73, G34

Suggested Citation

Ma, Xiaofang and Wang, Wenming and Zhou, Gaoguang and Chen, Jun, Public Governance and Tunneling: Evidence from a Quasi-Experiment in China (March 1, 2023). China Accounting & Finance Review, Vol. 25, No. 1, 2023, Available at SSRN: https://ssrn.com/abstract=4516914

Xiaofang Ma

Zhejiang University of Technology

China

Wenming Wang (Contact Author)

Zhejiang University ( email )

Gaoguang Zhou

Hong Kong Baptist University (HKBU) - Department of Accountancy & Law ( email )

Kowloon Tong, Kowloon
Hong Kong

Jun Chen

Zhejiang University ( email )

School of Management
Zijingang Campus
Hangzhou, Zhejiang 310058
China

HOME PAGE: http://person.zju.edu.cn/junchen

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