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Controlling shareholder, expropriations and firm’s leverage decision: Evidence from Chinese Non-tradable share reform

Liu, Qigui and Tian, Gary Gang 2012, Controlling shareholder, expropriations and firm’s leverage decision: Evidence from Chinese Non-tradable share reform, Journal of corporate finance, vol. 18, no. 4, pp. 782-803, doi: 10.1016/j.jcorpfin.2012.06.002.

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Title Controlling shareholder, expropriations and firm’s leverage decision: Evidence from Chinese Non-tradable share reform
Author(s) Liu, Qigui
Tian, Gary Gang
Journal name Journal of corporate finance
Volume number 18
Issue number 4
Start page 782
End page 803
Total pages 22
Publisher Elsevier
Place of publication Amsterdam, The Netherlands
Publication date 2012
ISSN 0929-1199
Keyword(s) Leverage decision
Excess control rights
Tunneling
Chinese non-tradable share reform
Summary This paper examines the effect of excess control rights on the leverage decisions made by Chinese non-SOEs before and after the Non-tradable share reform (NTS reform). We find that firms with excess control rights have more excess leverage and their controlling shareholders use the resources for tunneling rather than investing in positive NPV projects. We also find that excess leverage in firms with excess control rights decreases and the market reaction to announcements of related party transactions are more positive after NTS reform. This confirms that tunneling by the controlling shareholders actually reduced. We argue that in emerging markets where legal protection for creditors and shareholders is weak, controlling shareholders borrow excess debt to tunnel through inter-corporate loans and related party transactions. Furthermore the privatization of these economies can reduce the controlling shareholders' tunneling activities and associated excess leverage which destroys firm value.
Language eng
DOI 10.1016/j.jcorpfin.2012.06.002
Field of Research 150201 Finance
Socio Economic Objective 900101 Finance Services
HERDC Research category C1.1 Refereed article in a scholarly journal
Copyright notice ©2012, Elsevier
Persistent URL http://hdl.handle.net/10536/DRO/DU:30078293

Document type: Journal Article
Collection: Department of Finance
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