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Is innovative activity a way to conduct tunneling behavior? Evidence from the seasoned equity offerings of Chinese firms

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  • Yu, Chenyang
  • Sun, Hanbing
  • Fu, Changluan

Abstract

Using a sample of Chinese firms, we prove that a firm's abnormal innovative activities during a seasoned equity offering (SEO) period is a way for its controlling stockholders to conduct tunneling. We find that a firm significantly improves its innovative intensity and performs more inefficient innovative activities in SEO years. These excessive innovative activities are restrained when the principal–agent problem is alleviated. Further research shows that catering to investors is a mechanism by which the controlling shareholders can implement innovative tunneling. Controlling shareholders can manipulate innovative activities before an SEO to increase a firm's stock price and reduce SEO financing costs.

Suggested Citation

  • Yu, Chenyang & Sun, Hanbing & Fu, Changluan, 2022. "Is innovative activity a way to conduct tunneling behavior? Evidence from the seasoned equity offerings of Chinese firms," Finance Research Letters, Elsevier, vol. 46(PB).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321004396
    DOI: 10.1016/j.frl.2021.102452
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    References listed on IDEAS

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    Cited by:

    1. Lu, Xiaoyu & Gui, Zhou, 2024. "An study of liquidity shock, financial market participation on hollowing behavior of controlling shareholder," Finance Research Letters, Elsevier, vol. 61(C).

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    More about this item

    Keywords

    Tunneling; Innovative activity; Catering behavior;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G40 - Financial Economics - - Behavioral Finance - - - General

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