Tunneling, propping, and expropriation: Evidence from connected party transactions in Hong Kong

Yan Leung Stephen CHEUNG, P. Raghavendra RAU, Aris STOURAITIS

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321 Citations (Scopus)

Abstract

We examine a sample of connected transactions between Hong Kong listed companies and their controlling shareholders. We address three questions: What types of connected transactions lead to expropriation of minority shareholders? Which firms are more likely to expropriate? Does the market anticipate the expropriation by firms? On average, firms announcing connected transactions earn significant negative excess returns, significantly lower than firms announcing similar arm's length transactions. We find limited evidence that firms undertaking connected transactions trade at discounted valuations prior to the expropriation, suggesting that investors cannot predict expropriation and revalue firms only when expropriation does occur. Copyright © 2006 Elsevier B.V. All rights reserved.
Original languageEnglish
Pages (from-to)343-386
JournalJournal of Financial Economics
Volume82
Issue number2
DOIs
Publication statusPublished - Nov 2006

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Hong Kong
Propping
Expropriation
Investors
Listed companies
Controlling shareholders
Minority shareholders
Excess returns

Citation

Cheung, Y.-L., Rau, P. R., & Stouraitis, A. (2006). Tunneling, propping, and expropriation: Evidence from connected party transactions in Hong Kong. Journal of Financial Economics, 82(2), 343-386. doi: 10.1016/j.jfineco.2004.08.012

Keywords

  • International corporate governance
  • Legal systems
  • Expropriation
  • Connected transactions
  • Pyramids
  • Tunneling
  • Propping