Chizema2020_Article_MutualFundsTunnelingAndFirmPer.pdf (993.35 kB)

Mutual funds, tunneling and firm performance: evidence from China

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journal contribution
posted on 02.11.2020, 13:46 by Amon Chizema, Wei Jiang, Jing-Ming Kuo, Xiaoqi Song
© 2019, The Author(s). In contrast to US companies, Chinese firms have concentrated ownership with the effect that the central agency problem emanates from controlling shareholders expropriating minority shareholders, a phenomenon referred to as ‘tunneling’. This study examines the monitoring effect of mutual funds on the tunneling behavior of controlling shareholders. Due to the distinctive institutional settings in China, including a high level of ownership concentration, underdeveloped legal system in the stock markets and weak governance mechanisms in the mutual fund industry, we find that an increase in mutual fund ownership effectively mitigates the tunneling behavior of controlling shareholders thus improving firm performance. Nonetheless, after the mutual fund ownership reaches a certain threshold, an increase in concentrated mutual fund ownership is associated with heavier tunneling and lower firm performance. This may suggest that concentrated mutual funds collude with controlling shareholders in order to preserve their private interests. Moreover, the above effects are found to be more pronounced for firms with heavier tunneling activities. Our finding of the non-monotonic monitoring role of mutual funds brings attention to the private interest theory for mutual funds, an aspect that has been largely ignored in previous studies on mutual funds.

History

School

  • Business and Economics

Department

  • Business

Published in

Review of Quantitative Finance and Accounting

Volume

55

Issue

1

Pages

355 - 387

Publisher

Springer Science and Business Media LLC

Version

VoR (Version of Record)

Rights holder

© The authors

Publisher statement

This is an Open Access Article. It is published by Springer under the Creative Commons Attribution 4.0 Unported Licence (CC BY). Full details of this licence are available at: http://creativecommons.org/licenses/by/4.0/

Acceptance date

31/07/2019

Publication date

2019-11-09

Copyright date

2020

ISSN

0924-865X

eISSN

1573-7179

Language

en

Depositor

Amon Chizema Deposit date: 30 October 2020

Licence

Exports