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Controlling shareholder’s ownership, control rights and related-party transactions – analysis of regulatory effects based on board characteristics

Author

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  • Donghua Chen

    (Zhejiang Wanli University)

  • Xuerui Wei

    (Shanghai Technical Institute of Electronics & Information)

  • Huimin Wang

    (Shaoxing University)

Abstract

After the share structure reform, controlling shareholder embraces more intimate related-party transactions to tunnel. Under the split of the CEO duality, the agency of the controlling shareholder is more complicated, and its cost is higher. This article focuses on the impact of controlling shareholder features and board characteristics on related-party transactions and examines their influence under the regulation. The empirical research reveals: (1) Cash flow rights are partly negatively related to related-party transactions and deliver a U-shaped non-linear curve relationship, suggesting the “incentive-barrier” effect. Pyramid shareholdings provide a natural barrier for controlling shareholders to the tunnel. (2) From the second-largest shareholders to the tenth-largest shareholders, it is challenging to balance the hidden tunneling behavior of the controlling shareholder, and they are possible to conspire with the controlling shareholder. (3) The CEO duality can enhance the influence of controlling shareholder characteristics on related-party transactions. (4) Under the regulation of the board’s independence, the influence of controlling shareholder characteristics has weakened on related-party transactions. These findings ascertain new proof on the influencing factors of related-party transactions.

Suggested Citation

  • Donghua Chen & Xuerui Wei & Huimin Wang, 2022. "Controlling shareholder’s ownership, control rights and related-party transactions – analysis of regulatory effects based on board characteristics," International Entrepreneurship and Management Journal, Springer, vol. 18(4), pages 1577-1604, December.
    • Handle: RePEc:spr:intemj:v:18:y:2022:i:4:d:10.1007_s11365-022-00801-w
    DOI: 10.1007/s11365-022-00801-w
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    1. Ren, Xiaohang & Zeng, Gudian & Zhao, Yang, 2023. "Digital finance and corporate ESG performance: Empirical evidence from listed companies in China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

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