Does the market understand the ex ante risk of expropriation by controlling shareholders?
Author(s)
Author(s)
Rau, P. R.
Stouraitis, A.
Tan, W.
Date Issued
2021
Publisher
Elsevier
Journal
Journal of Corporate Finance
Volume
68
Abstract
We examine how the market values operating assets in the presence of time-varying ex ante risk
that these assets may be tunneled away. We analyze pairs of Chinese publicly listed firms and
their non-listed parents and examine the market valuation of current assets (cash balances, trade
receivables, receivables due from the controlling shareholders, inventories) and fixed assets on
the publicly listed firm’s balance sheet. Our results show that in periods when the risk of
tunneling from the publicly listed firm to its controlling shareholder increases, operating assets
that are easy to tunnel (cash and receivables due from the controlling shareholder) are valued at
larger discounts, while operating assets that are not easy to tunnel (trade receivables, inventories,
fixed assets) are not valued at such discounts.
SFU Affiliated Publication
No
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