The Existence And Governance Of Tunneling Between Related Parties And Listed Companies

The related party transaction is essentially a neutral area, but because of China's listed companies'special listing process, it is a common phenomenon that the large shareholder is always in the dominant position and the companies are controlled by the insiders. So the related party can easily carry out the interests of from listed companies through the related party transaction. In recent years, the tunneling related party transactions aroused more and more widespread concern. This paper is based on the latest data over period 2005-2007 to test the existence and governance factors of tunneling between related party and listed companies. It divides the dates into two samples by trading partners. One is the related party transaction between the largest shareholder and listed company, and the other is the related party transaction between the non-largest shareholder and listed company. And this is the first time of testing the nature of non-largest shareholders'related party transaction so that it is of great practical significance under the circumstances that the non-largest shareholders'related party transactions is in the growing proportion of transactions.This paper investigates that tunneling between related parties and listed companies exists. The largest shareholder can transfer interests from listed company by occupation of funds, mortgage, and equity transactions. The non-largest shareholders will transfer interests by occupation of funds and equity transactions. In the companies that the largest shareholder in a position of absolutely dominance, the largest shareholder will expropriate the minority shareholder by mortgage; in the companies that the largest shareholder not in a position of absolutely dominance, the largest shareholders can transfer profits by occupation of funds and equity transactions, and the non-largest shareholders'occupations of funds and mortgages will expropriate the company's profits. We also find that the proportion of the largest shareholder takes on a inverted-U relationship with the tunneling related party transactions only from the angle of symbols but it doesn't get through statistical tests; Ownership balance ratio has no significant influence on the tunneling related party transactions; The board size only can restrain some of the related party transactions; Independency directors and separation of General Manager and Chairman of the Board has no obvious effect on supervising the tunneling related party transactions; issuing B shares or H shares, Clean audit opinion and audited by The "Big Four" accountancy firms can not help the company to curb the tunneling related party transactions. Finally, for empirical studies, the author propose to optimize the structure of ownership, implement the Vote regressive system and Vote accumulation system, improve the performance of boards of directors, and set up a scientific executives'incentive mechanism, and step up supervision and punishment to the related party transaction, and so on.