معاملات متصل شده و ارزش شرکت: مدارک و شواهد از شرکت های تابعه چین

This paper investigates tunneling through related-party transactions (RPT) using a unique dataset of listed Chinese companies in Hong Kong. While prior findings suggest that investors do not seem to systematically discount tunneling firms, we find that firm value (Tobin's q and market-to-book value) is significantly lower for firms undertaking potentially expropriating transactions. In addition, cumulative abnormal returns (CAR) are lower for RPTs with disclosure exemptions and are negatively related to some RPT types. Our results suggest that firms tunnel using RPTs with disclosure exemptions and that disclosure requirements matter for RPTs. These RPTs could signal firms' corporate-governance quality, as investors substantially discount firms that undertake potentially expropriating transactions.

Earlier studies related to tunneling use indirect proxies to examine potential expropriations (e.g. Bertrand et al., 2002, Bae et al., 2002, Sung, 2003 and Friedman et al., 2003). Recent research instead focuses on related party transactions (RPT) as a direct measure of tunneling (e.g. Berkman et al., 2009, Cheung et al., 2009a, Cheung et al., 2009b and Jian and Wong, 2010). RPTs become the focus because, as Johnson et al. (2000) suggest, tunneling activities in both developed and emerging markets are mostly legal. It is plausible that the controller may choose not to disclose the firm's expropriating transactions, or may attempt to arrange these transactions to look like normal business deals. Concealing or disguising these transactions, however, usually violates disclosure requirements of listed companies and may increase legal liabilities. Therefore, RPTs may provide a channel to facilitate tunneling activities legally. Even though these transactions are legitimate from a legal perspective, investors may still recognize the conflict of interest and potential expropriation. Then, do investors impose a governance discount on firms that engage in RPTs? Do differences in disclosure requirements matter? What types of RPTs facilitate tunneling? Cheung et al. (2006) analyze 375 connected and discloseable1 transactions between 1998 and 2000 that required distributing a circular to shareholders and independent shareholders' approval. They compare these transactions with discloseable transactions of similar transaction types and conclude that a negative excess return occurs when these transactions are announced. They also find that China-related firms are more likely to undertake connected and discloseable transactions that are expropriating. Surprisingly, their results suggest that investors do not seem to predict tunneling activities, because firms that undertake expropriating transactions are not traded at a discount. One possible reason for this finding is that their samples of connected transactions (CT) are large-size CTs, which are also discloseable transactions. These transactions are subjected to more stringent disclosure requirements, such as the distribution of circulars and independent shareholders' approval. Within Hong Kong (HK) institutional settings, insiders can “legalize” tunneling by using smaller CTs, because these CTs are exempt from independent shareholders' approval and the distribution of circulars. Larger CTs (e.g., connected and discloseable transactions), in contrast, require more detailed disclosure, and independent shareholders may intervene in the transactions. This institutional setting provides opportunities for insiders to legalize tunneling. Therefore, we argue that tunneling activities usually go through transactions with disclosure exemptions (CTs only). And since undertaking these transactions may signal the firms' intention to minimize disclosure and avoid shareholders', scrutiny, investors will impose a governance discount on these firms. To address the research questions, we use a unique dataset that includes all CTs with disclosure exemptions, which constitute about 80% of all RPTs.2 This study focuses on the RPTs of companies listed in the HK stock market. The HK market is an appropriate setting for this study for a few reasons. First, HK has some of the strongest legal protections among all emerging markets, implying that the requirement to disclose CTs is generally enforceable. Second, the listing rules explicitly govern connected and notifiable transactions and are associated with detailed instructions with respect to relevant transactions.3 Third, there is evidence of tunneling in HK (Cheung et al., 2006). There are two major types of mainland China-related shares: Red Chips4 and H Shares.5 We focus on these two types of shares because regulation differences between mainland China and HK may facilitate tunneling activities. Controlling shareholders, which are often Chinese firms, may take advantage of the different legal jurisdictions between HK and China. Cheung et al. (2006) also suggest that mainland China companies are more likely to undertake expropriating CTs. Furthermore, hand-collecting the transaction data concerning the full sample of HK stocks is prohibitively time-consuming.6 It is appropriate, therefore, to focus on just Red Chips and H Shares. The major findings in this paper are summarized as follows. For companies that undertake potentially expropriating transactions, Tobin's q and market-to-book value (MTBV) are significantly lower. Even though these RPTs are relatively small in size, the discount on firm value (firms undertaking expropriating transactions have an average 33.4% lower Tobin's q) is much larger than the cumulative abnormal return (CAR) of the related transactions (about − 1% to − 2% CAR for average CTs). These results suggest that there are systematic discounts on firm value if a firm undertakes RPTs and that controlling insiders usually expropriate through CTs with disclosure exemptions. We find that there are lower CARs for transactions related to Continuing, Contractual Agreement, and Loan and Guarantee. Also, connected and discloseable transactions have a higher CAR relative to pure CTs, implying that the disclosure requirements matter for CTs. This paper contributes to the tunneling literature in several ways. First, our findings provide some answers to the puzzle described by Cheung et al. (2006), suggesting that not only would the market react to the announcement of RPTs, but also that these firms would be traded at a discount. Second, CTs with disclosure exemptions are small transactions, and the potential value tunneled from these transactions is relatively small compared to the discount in firm value. Therefore, undertaking these transactions may signal a firm's poor corporate governance (CG) quality. Third, our results suggest that companies may use transactions with disclosure exemptions to expropriate minority shareholders. The potentially expropriating RPTs could be broken down into smaller transactions so that they would be subjected to fewer disclosure requirements. Thus, CTs can be an important indicator of how companies are actually governed, and stringent disclosure requirements for CTs can effectively reduce tunneling activities. The remainder of this paper is organized as follows. Section 2 discusses prior literature on tunneling and the research hypotheses. Section 3 describes the definition of RPTs. Section 4 presents the data and the descriptive statistics of the variables. Section 5 describes the methodology. Section 6 discusses the empirical results, and Section 7 concludes.

This paper provides direct evidence of tunneling through related-party transactions in China-affiliated companies. In contrast with Cheung et al. (2006), we find that investors discount companies engaged in potentially expropriating transactions. The discount in value seems to be much larger than the potential value tunneled that is directly related to these transactions. Our results imply that these transactions signal the firm's CG quality if the firm undertakes potentially expropriating CTs. We show that the market reacts negatively to CT announcements but positively to connected and discloseable transactions. Our results suggest that firms tend to use CT with disclosure exemptions to tunnel. These smaller CTs do not require independent shareholders' approval and the distribution of circulars. The regression of CAR on transaction types reveals that some types of CTs are potentially expropriating. These evidences suggest that firms may choose to avoid disclosure requirements. Disclosure requirements of RPTs are important to firm value, since CAR is positively related to the difference in disclosure requirements. As shown in Chhaochharia and Grinstein (2007), enhanced disclosure requirements for RPTs from the Sarbanes–Oxley Act (SOX) can positively impact market value. They also argue that SOX-related party provisions may not impose additional costs on existing firms with no related party transactions. Similarly, more stringent disclosure requirements could be applied to companies that engage in CT with disclosure exemptions. Such initiatives may include requiring the disclosure of CTs by circular distribution. Furthermore, as our results suggest that companies expropriate through transactions with disclosure exemptions, we recommend that the range of percentage ratios across all discloseable transactions be lowered to include smaller transactions. All these supplementary disclosure requirements would provide investors with important information that could effectively reduce tunneling.