Chizema2020_Article_MutualFundsTunnelingAndFirmPer.pdf (993.35 kB)
Mutual funds, tunneling and firm performance: evidence from China
journal contribution
posted on 2020-11-02, 13:46 authored by Amon ChizemaAmon 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 AccountingVolume
55Issue
1Pages
355 - 387Publisher
Springer Science and Business Media LLCVersion
- VoR (Version of Record)
Rights holder
© The authorsPublisher 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
2019-07-31Publication date
2019-11-09Copyright date
2020ISSN
0924-865XeISSN
1573-7179Publisher version
Language
- en
Depositor
Amon Chizema Deposit date: 30 October 2020Usage metrics
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