Can Inquiry Letter Identify Controlling Shareholder’s Tunneling?

With the disappearance of 30 billion capital of Kangmei pharmaceutical and Kangdexin’s 300 bilion capital not reluctant to pay back debt,controlling shareholders’tunneling has increased,seriously damaging the interests of small and medium-sized investors.Therefore,how to identify and restrain the tunneling behavior of major shareholders of the company has always been a research focus.China’s Securities Regulatory Commission began to publicly disclose inquiry letters in 2014,and put forward "inquiry based" supervision in 2016,aiming to play the role of first-line supervision of exchanges and improve the efficiency of supervision.However,as a nonpunitive regulation,the ability to identify the risk of tunneling by potential controlling shareholders of listed companies has not attracted the attention of scholars.Therefore,this paper,based on the onhe-hand data in 2015-2019,argue the function of inquiry letter in risk disclosure about shareholders’ tunneling We find:(1)Probability of being inquired by Exchange is positive coefficient with the level of tunneling,indicating that the exchange is concerned about "striking the listed company" behavior;(2)in the sample being inquired by Exchanges,the complexity of inquiry letter is positive relative to level of tunneling,which is reflected in the number of problems and requirement of intermediaries such as auditor or lawyer.;(3)when level of tunneling increases,the probability that inquiry letter contains problems about tunnneling and the reply of company will be overdue,meaning inquire letters can identify tunneling problems precisely and correctly;(5)when the inquiry letter involves the tunneling of controlling shareholders,the Cumulative Abnormal Return of the inquiry letter is more severe,indicating that the market is able to identify the severity of the inquiry letters and transmit relevant information to investors.The research results of this paper show that the inquiry letter institution is able to accurately identify risk if capital market,and also enlightens the exchange to strengthen front-line supervision and enrich the supervision methods,which is conducive to the decision-making of information users and investors.