Research On The Family-controlled Tunneling Behavior Of Chinese Private Listed Companies

In recent years, with the increase of family-controlled holding companies, some cases emerge frequently, in which the interests of small shareholders are deprived because of assets transferring. These family-controlled holding companies aim to gather fortune by means of digging tunnel through affiliated transactions. In the paper; we choose the whole body of 280 private listed companies by the end of 2004 as research subjects. Under the support of collusion theory, we establish a three-dimensional framework which includes familism, control form and trust pattern, and then analyse the motives and factors of the tunneling behavior to the listed companies by the controlled family shareholders in collusion with the managers. The research, which distinguishes Capitalists-controlled (CFB) from Entrepreneurs -controlled (EFB), finds out that the levels of the pyramid structure, Control and Cash flow coefficient of deviation of Capitalists-controlled listed companies are higher than those controlled by entrepreneurs. Therefore Capitalists-controlled listed companies have more obvious tendency towards tunneling behavior than EFB. But the enterprise values of the former are lower than the latter.The results of regression analysis on family occupying of listed companies' capital show: capitalist-families incline to conduct tunnel behavior by the means of establishing multi-layer control chain; members of the entrepreneur-families working in listed company is conducive to the formation of collusion, digging tunnel and transferring resources; companies whose controlling shareholders exist in the form of enterprise groups suffer from being emptied more seriously; in family-controlled listed companies, independent directors have not played an effective supervisory role; the equity ratio of general manager and intensity of the tunneling behavior show U-shaped relationship, "the incentive effects of regulation" and "collusion draining effect" existing.The policy recommendations of the paper are based on the analysis of the game model: a sound legal environment and a good corporate governance mechanism could decrease the possibility that families empty listed companies through tunneling behavior. The increase of the family controlling shareholder equity ratio and the intensity of the tunneling behavior show inverted-U relationship first decreased and then increased. The regulatory strategy of securities regulatory authorities and family irregularities cost show reverse relations, and so do the family irregularities strategy and the reputation of securities regulatory authorities. Therefore, in the prospective process of reforming China's stock market, if we want to avoid undermining the interests of small shareholders, we should implement leadership accountability system on securities regulatory authorities at all levels, in case of loss. At the same time, we must perfect market regulation mechanism and external mechanisms of corporate governance while enhancing the cost and intensity of penalty of family irregularities. And we should also increase potential costs of tunneling behavior so as to suppress their speculation. Efforts must be made to standardize control of the market and build up equity degrees. Furthermore, listed companies inspection system need to be perfected. Thus, private listed companies could grow healthily in an open, fair, and orderly market environment.