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Social trust environment and tunneling

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  • Chen, Shihua
  • Han, Xu
  • Jebran, Khalil

Abstract

We show how social trust environment influences tunneling. Using social norm theory, we argue that a high social trust environment mitigates unethical behavior from controlling shareholders and reduces tunneling. We further assume that the association between social trust and tunneling is weaker for enterprises controlled by the state and for those located in regions of high legal development. Using a sample of Chinese listed firms from 2003 to 2016, we find supportive evidence for our hypotheses. Similar conclusions were obtained with alternative measures, endogeneity corrections, and additional analyses. Our findings suggest that as a social norm, social trust can serve as an alternative mechanism for reducing agency problems in an emerging economy.

Suggested Citation

  • Chen, Shihua & Han, Xu & Jebran, Khalil, 2020. "Social trust environment and tunneling," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(3).
    • Handle: RePEc:eee:jocaae:v:16:y:2020:i:3:s1815566920300266
    DOI: 10.1016/j.jcae.2020.100212
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    Cited by:

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    2. Ullah, Irfan & Jebran, Khalil & Umar, Muhammad & Bin Yousaf, Umair, 2023. "Chief executive officer trustworthiness and green innovation," Research in International Business and Finance, Elsevier, vol. 64(C).
    3. Wang, Lin & Tang, Yingkai & Chen, Yaozhi & Wang, Kun, 2021. "Be a better boss. Employee treatment, trust level and family business innovation: Evidence from China," Research in International Business and Finance, Elsevier, vol. 58(C).
    4. Chen, Linrong & Zeng, Huixiang, 2024. "Can social trust promote the professional division of labor in firms? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 363-377.
    5. Gao, Kaijuan & Shen, Yiran & Chan, Kam C., 2021. "Does analyst following restrain tunneling? Evidence from brokerage closures and mergers," Finance Research Letters, Elsevier, vol. 41(C).
    6. Jia Li & Zhoutianyang Sun, 2023. "Cost stickiness, earnings forecast accuracy, and the informativeness of stock prices about future earnings: evidence from China," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-16, December.

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    More about this item

    Keywords

    China; Legal development; Social trust; State-owned firms; Tunneling;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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