Foreign Ownership and Controlling Shareholder's Tunneling
ZHANG Hao, TAN Wenqian, HAN Yonghui
School of Finance,Guangdong University of Foreign Studies; International School of Business Finance, Sun Yat-sen University; Guangdong Institute for International Strategies, Guangdong University of Foreign Studies
Summary:
There is a significant information asymmetry between controlling shareholders and minority shareholders, which may result in controlling shareholders exploiting their effective control to transfer the firm's assets and profits, thereby undermining the interests of minority shareholders. Due to unique historical reasons and institutional backgrounds, Chinese listed companies are characterized by a concentrated ownership structure, as opposed to the dispersed ownership structure prevalent in Western capital markets. As a result, controlling shareholders have effective control over the company, which provides convenience for tunneling activities. Therefore, how to effectively curb the tunneling of controlling shareholders and effectively protect the interests of minority shareholders has thus become a critical focus for promoting the high-quality development of listed companies in China. Since China's accession to the WTO, the gradual opening up of the capital market has enabled a large number of foreign companies to enter the Chinese market through joint ventures, cooperation and equity participation, thereby injecting fresh impetus into the governance of listed companies. Given their strong financial resources and rich investment management expertise, foreign investors play a crucial role in improving the corporate governance of the companies, including improved information transparency, enhanced quality of accounting disclosure and reduced earnings management. However, the question remains: can foreign investors use their advantages to effectively monitor and constrain the tunneling of controlling shareholders？ The existing literature has not thoroughly and comprehensively explored this issue. Based on the aforementioned ideas, we manually collect data on the top ten shareholders of Chinese A-share listed companies from 2003 to 2022, and comprehensively examine the impact and mechanism of foreign investor ownership on the tunneling behavior of controlling shareholders under the background of capital market liberalizationg. The main findings are as follows. First, foreign ownership can improve the quality of information disclosure in the firms they invest in and increase the attention of analysts and media, thereby effectively constraining the tunneling behavior of controlling shareholders. Second, foreign ownership from countries with high governance standards, as well as foreign direct investors and foreign institutional investors, have a stronger inhibitory effect on the tunneling behavior of controlling shareholders. Third, independent foreign institutional investors, stable foreign institutional investors, and foreign institutional investors who have signed the UN Principles for Responsible Investment (UN PRI) have a more pronounced impact. Finally, in non-state-owned firms, firms with poor governance, periods of high economic policy uncertainty, and in regions with poor legal regulation, the impact of foreign ownership is more significant. Our paper makes the following three key contributions. First, we provide a novel approach to addressing the governance of controlling shareholders' tunneling. Previous studies qualitatively examined the changes in controlling shareholders' tunneling before and after the opening of the Shanghai-Hong Kong Stock and Shenzhen-Hong Kong Stock Connect programs, but were unable to distinguish between different types of foreign investors. We quantitatively assess the extent to which increases in foreign ownership can influence controlling shareholders' tunneling. In addition, we compare the effects of FDI and QFII, foreign institutional investors versus foreign individual investors, different ownership scales, different types of foreign institutional investors, and foreign investors from different countries on the tunneling of controlling shareholders. This enriches the literature on the governance of insider behavior. Second, we provide a new perspective for studying the impact of foreign ownership. Previous studies have not reached a consistent conclusion on the impact of foreign ownership. Some studies argue that foreign investors in emerging markets act like “locusts”, prioritizing short-term profits without regard for long-term corporate development. Conversely, other studies suggest that foreign investors export their advanced management experience to improve corporate governance of the firms. We confirm that foreign ownership can play a regulatory role, exerting a positive governance effect, which contribute to a deeper understanding of the economic implications of capital market openness policies. Third, existing literature on foreign investors in China has primarily focused on QFIIs, lacking a comprehensive examination of the influence of foreign capital on corporate governance. We manually collected data on the shareholding ratios and their origin countries of foreign investors in listed companies to provide a more accurate characterization of the impact of foreign capital on controlling shareholders' tunneling.
[1]陈少凌、周开国、杨海生和钟嘉颖,2024,《分析师利空关注与公司投资效率:“萝卜”加“大棒”》,《金融研究》第1期,第150～168页。 [2]陈泽艺、李常青和李宇坤,2022,《对外担保与企业创新投入》,《金融研究》第4期,第133～150页。 [3]姜广省、卢建词和李维安,2021,《绿色投资者发挥作用吗？——来自企业参与绿色治理的经验研究》,《金融研究》第5期,第117～134页。 [4]寇宗来、盘宇章和刘学悦,2015,《中国的信用评级真的影响发债成本吗？》,《金融研究》第10期,第81～98页。 [5]李百兴、高蕴哲和王鹏宇,2023,《连锁非控股股东的内部治理效应研究——基于控股股东掏空视角》,《会计研究》第3期,第61～82页。 [6]李春涛、刘贝贝、周鹏和张璇,2018,《它山之石:QFII与上市公司信息披露》,《金融研究》第12期,第138～156页。 [7]李蕾和韩立岩,2014,《价值投资还是价值创造？———基于境内外机构投资者比较的经验研究》,《经济学〈季刊〉》第1期,第351～372 页。 [8]连立帅、朱松和陈关亭,2019,《资本市场开放、非财务信息定价与企业投资——基于沪深港通交易制度的经验证据》,《管理世界》第8期,第136～154页。 [9]阮睿、孙宇辰、唐悦和聂辉华,2021,《资本市场开放能否提高企业信息披露质量？——基于“沪港通”和年报文本挖掘的分析》,《金融研究》第2期,第188～206页。 [10]汝毅、呙昊婧和薛健,2022,《媒体记者与公司管理层沟通提高了新闻报道质量吗？——基于公司调研活动的实证研究》,《金融研究》第2期,第189～206页。 [11]宋科、徐蕾、李振和王芳,2022,《ESG投资能够促进银行创造流动性吗？——兼论经济政策不确定性的调节效应》,《金融研究》第2期,第61～79页。 [12]孙泽宇、齐保垒和崔晓玉,2020,《资本市场开放与大股东掏空——基于沪深港通交易制度的经验证据》,《金融经济学研究》第4期,第94～107页。 [13]田利辉和王可第,2017,《社会责任信息披露的“掩饰效应”和上市公司崩盘风险——来自中国股票市场的DID-PSM分析》,《管理世界》第11期,第146～157页。 [14]王亮亮,2018,《控股股东“掏空”与“支持”:企业所得税的影响》,《金融研究》第2期,第172～189页。 [15]王化成、曹丰和叶康涛,2015,《监督还是掏空:大股东持股比例与股价崩盘风险》,《管理世界》第2期,第45～57页。 [16]王立章、王咏梅和王志诚,2016,《控制权、现金流权与股价同步性》,《金融研究》第5期,第97～110页。 [17]吴先聪、张健和胡志颖,2016,《机构投资者特征、终极控制人性质与大股东掏空——基于关联交易视角的研究》,《外国经济与管理》第6期,第3～20页。 [18]叶康涛、陆正飞和张志华,2007,《独立董事能否抑制大股东的“掏空”？》,《经济研究》第 4期,第101～111页。 [19]章卫东、张洪辉和邹斌,2012,《政府干预、大股东资产注入:支持抑或掏空》,《会计研究》第8期,第34～40页。 [20]郑国坚、林东杰和张飞达,2013,《大股东财务困境、掏空与公司治理的有效性——来自大股东财务数据的证据》,《管理世界》第5期,第157～168页。 [21]周开国、李涛和张燕,2011,《董事会秘书与信息披露质量》,《金融研究》第7期,第167～181页。 [22]诸竹君、黄先海和王毅,2020,《外资进入与中国式创新双低困境破解》,《经济研究》第5期,第99～115页。 [23]Aggarwal, R., I. Erel, M. Ferreira, and P. Matos, 2011, “Does Governance Travel around the World？ Evidence from Institutional Investors”, Journal of Financial Economics, 100(1), pp.154～181. [24]Ang, J., Y. Cheng, and C. Wu, 2014, “Does Enforcement of Intellectual Property Rights Matter in China？ Evidence from Financing and Investment Choices in the High-Tech Industry”, Review of Economics and Statistics, 96(2), pp. 332～348. [25]Baker, S. R., N. Bloom, and S. J. Davis, 2016, “Measuring Economic Policy Uncertainty”, Quarterly Journal of Economics, 131(4), pp. 1593～1636. [26]Bena, J., M. A. Ferreira, P. Matos, and P. Pires, 2017, “Are Foreign Investors Locusts？ The Long～Term Effects of Foreign Institutional Ownership”, Journal of Financial Economics, 126(1), pp. 122～146. [27]Bertrand, M., P. Mehta, and S. Mullainathan, 2002, “Ferreting out Tunneling: An Application to Indian Business Groups”, Quarterly Journal of Economics, 117(1), pp. 121～148. [28]Bushman, R. M., J. D. Piotroski, and A. J. Smith, 2004, “What Determines Corporate Transparency？”, Journal of Accounting Research, 42(2), pp. 207～252. [29]Chen, L., M. H. Han, Y. Li, W. L. Megginson, and H. Zhang, 2022, “Foreign Ownership and Corporate Excess Perks”, Journal of International Business Studies, 53(1), pp. 72～93. [30]Chen, Z., J. Du, D. Li, and R. Ouyang, 2013, “Does Foreign Institutional Ownership Increase Return Volatility? Evidence from China”, Journal of Banking and Finance, 37(2), pp. 660～669. [31]Deng, B. J., Z. F. Li, and Y. Li, 2018, “Foreign Institutional Ownership and Liquidity Commonality around the World”, Journal of Corporate Finance, 51, pp. 20～49. [32]Jiang, F. and K. A. Kim, 2020, “Corporate Governance in China: A survey”, Review of Finance, 24(4), pp. 733～772. [33]Jiang, G., C. M. Lee, and H. Yue, 2010, “Tunneling through Intercorporate Loans: The China Experience”, Journal of Financial Economics, 98(1), pp. 1～20. [34]Kim, J. B., M. Pevzner, and X. Xin, 2019, “Foreign Institutional Ownership and Auditor Choice: Evidence from Worldwide Institutional Ownership”, Journal of International Business Studies, 50(1), pp. 83～110. [35]Lel, U., 2019, “The Role of Foreign Institutional Investors in Restraining Earnings Management Activities Across Countries”, Journal of International Business Studies, 50(6), pp. 895～922. [36]Leuz, C., D. Nanda, and P. D. Wysocki, 2003, “Earnings Management and Investor Protection: An International Comparison”, Journal of Financial Economics, 69(3), pp. 505～527. [37]Tsang, A., F. Xie, and X. Xin, 2019, “Foreign Institutional Investors and Corporate Voluntary Disclosure around the World”, The Accounting Review, 94(1), pp. 319～348.
