Tunneling, Propping,
and Expropriation: Evidence from connected party transactions
in Hong Kong
Yan-Leung Cheung, P. Raghavendra Rau, and Aris Stouraitis
City University of Hong Kong, Purdue University, and
City University of Hong Kong
We examine a sample of 328 filings of "connected transactions" between
Hong Kong listed companies and their controlling shareholders.
We address three questions: What types of connected transactions
are likely to lead to expropriation of minority shareholders?
Which firms are more likely to expropriate? Does the
market anticipate the expropriation? On average, firms
earn significant negative excess returns both around
the initial announcement of the connected transactions
and during the 12-month period following the announcement.
Excess returns are significantly negatively related to
the percentage ownership by the controlling shareholder.
They are also significantly negatively related to proxies
for information disclosure. The likelihood of undertaking
connected transactions is higher for firms whose ultimate
owners can be traced to mainland China. Finally, we find
limited evidence that the market anticipates expropriation
by discounting firms that undertake connected transactions.
This paper is forthcoming in the Journal
of Financial Economics.
This paper has been presented at
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