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Rescue one and sacrifice others? Corporate tunneling phenomenon under China's new delisting regulations

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  • Li, Yaling
  • Lu, Jin
  • Wei, Dengxi

Abstract

This paper investigates the spillover effects of the new delisting regulations on normally-listed affiliates from the perspective of controlling shareholders' tunneling behavior. We find that after the implementation of new delisting regulations, there is a significant rise in related-party transactions among normally-listed firms when other affiliated firms within the same business group face delisting threats. Our findings indicate that the new regulations exacerbate the concerns about delisting, compelling controlling shareholders to engage in tunneling behaviors within normally-listed affiliates and to redirect resources to the delisting-threatened firms. This study indicates how stringent regulations affect shareholders' behaviors and intensify agency conflicts.

Suggested Citation

  • Li, Yaling & Lu, Jin & Wei, Dengxi, 2024. "Rescue one and sacrifice others? Corporate tunneling phenomenon under China's new delisting regulations," Finance Research Letters, Elsevier, vol. 67(PB).
    • Handle: RePEc:eee:finlet:v:67:y:2024:i:pb:s1544612324008973
    DOI: 10.1016/j.frl.2024.105867
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    References listed on IDEAS

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    More about this item

    Keywords

    Delisting regulations; Tunneling; Related-party transactions;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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