Tunneling through intercorporate loans: The China experience☆

By Guohua Jiang, Charles M. C. Lee, Heng Yue. 2010

1,476 citations recorded by the source corpus.

This study investigates a particularly brazen form of corporate abuse, in which controlling shareholders use intercorporate loans to siphon billions of RMB from hundreds of Chinese listed companies during the 1996-2006 period. We document the nature and extent of these transactions, evaluate their economic consequences, examine factors that affect their cross-sectional severity, and report on the mitigating roles of auditors, institutional investors, and regulators. Collectively, our findings shed light on the severity of the minority shareholder expropriation problem in China, as well as the relative efficacy of various legal and extra-legal governance mechanisms in that country.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/e28ee5501d33272d23c1d719a9068967917da6a1

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Citations in the corpus

Founder's political connections, second generation involvement, and family firm performance: Evidence from China (2015, methodology): “These features coupled with the prevalent tunneling of resources by managers from listed companies (Jiang et al., 2010) in China exacerbate the classic owner–manager conflict (as described by Jensen and Meckling, 1976) despite great monitoring efforts exerted by family owners.”
Political uncertainty and cash holdings: Evidence from China (2016, methodology): “The last RPT category is that of “others,” that is, the firm provides no explanation of the RPT. Similar in spirit to Jiang et al. (2010), who use “other receivables” to measure tunneling by large shareholders, we use the others category of RPTs to gauge a firm’s intention to hide its cash holdings.”
Family control and corporate cash holdings: Evidence from China (2015, methodology): “Controlling shareholders’ tunneling is measured by the inter-corporate loan (Jiang et al., 2010) and RPTs that are more likely to be a tunneling activity (tunneling RPTs) (Cheung et al., 2006) in this study. Jiang et al. (2010) argue that inter-corporate loans are widely used by controlling sharehol”
Social Trust and Corporate Misconduct: Evidence from China (2018, background): “We also include SHRCR1 to control for agency conflict between the controlling shareholder andminority shareholders (Jiang et al. 2010).”
The Sensitivity of Corporate Cash Holdings to Corporate Governance (2012, background): “…protection a¤orded Chinese minority investors makes it possible for controlling shareholders to control the listed company s cash and, if needed, to divert the cash to their own uses by related-party transactions and similar arrangements (see, e.g., Jian and Wong 2010; Jiang, Lee, and Yue 2010).”
Value relevance, earnings management and corporate governance in China (2015, background): “…used to manipulate earnings for financial reporting (Aharony et al., 2010b; Jian and Wong, 2010; Lo et al., 2010a; Wong et al., 2015), and good corporate governance mechanisms could moderate the level of tunneling in China (Gao and Kling, 2008; Jiang et al., 2010; Liu and Tian, 2012; Shan, 2013).”
The real effect of partial privatization on corporate innovation: Evidence from China's split share structure reform (2020, background): “They could even directly exploit minority shareholders through various tunneling activities (Jiang et al., 2010; Jian and Wong, 2010).”
Multiple large shareholders and corporate investment: Evidence from China (2018, neutral): “Jiang et al. (2010) ﬁ nd that SOEs tend to have less tunneling than other ﬁ rms. Firms tend to havemorepronouncedagencyproblemswhenthereisadivergencebetweencontrolrightsandcash ﬂ owrightsofthelargestcontrolling shareholders (e.g., Claessens et al., 2002; Faccio and Lang, 2002; Jiang et al., 2011).”
The Internal Capital Markets of Business Groups: Evidence from Intra-Group Loans (2014, neutral): “In one of the recent studies, Jiang, Lee, and Yue (2010) argue that the controlling shareholders of Chinese groups use these loans mostly for tunneling.”
Rise of the Fiduciary State: A Survey of Sovereign Wealth Fund Research (2014, neutral): “Relatedly, all these proposals reflect a strong desire to ensure that new resource flows would be channeled through a transparent, accountable, and professionally managed investment company rather than through existing—and often quite corrupt—state investment vehicles or state-owned banks (Jiang et ”