Independent Director Dissent and Large Shareholder Tunneling
DOI:
https://doi.org/10.54097/3cxtq478Keywords:
Independent Director Dissent, Large Shareholder Tunneling, External Governance, Media AttentionAbstract
In recent years, with tightening capital market regulations and ongoing optimizations in corporate governance structures, the monitoring role of independent directors has garnered increasing attention. Using data from A-share listed firms in China from 2007 to 2024, this study examines the impact of independent director dissent on large shareholder tunneling behavior. The findings indicate that independent director dissent significantly curbs tunneling activities, a conclusion that remains robust after a battery of rigorous tests. Heterogeneity analysis reveals that the inhibitory effect is more pronounced in firms characterized by "excessive board appointments" and when dissent pertains specifically to "connected transactions." Mechanism analysis suggests that such dissent activates external governance mechanisms by triggering negative media coverage and enhancing information transparency, thereby amplifying market monitoring pressure to constrain tunneling. These results align with the governance logic that independent directors utilize signaling to activate external oversight and raise the costs of expropriation. This paper offers significant implications for refining the independent director system, preventing large shareholder entrenchment, and strengthening the protection of minority investors.
Downloads
References
[1] Claessens, S., Djankov, S., Fan, J. P. H., & Lang, L. H. P. (1999). The expropriation of minority shareholders: Evidence from East Asia (World Bank Policy Research Working Paper No. 2088). World Bank. DOI: https://doi.org/10.2139/ssrn.202390
[2] Dou, C., Yang, X., Liu, W., & Chen, X. (2022). Independent director macro-vision and corporate debt default. Accounting Research, (7), 58–74. (Original work published in Chinese)
[3] Du, X., Yin, J., & Lai, S. (2017). Seniority ranking, CEO tenure and independent directors' dissent behavior. China Industrial Economics, (12), 151–169. (Original work published in Chinese)
[4] Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301–325. https://doi.org/10.1086/465037 DOI: https://doi.org/10.1086/467037
[5] Fan, H., & Wang, S. (2021). Investor network attention and the supervision effect on corporate tax avoidance. China Certified Public Accountant, (12), 70–76. (Original work published in Chinese)
[6] Fried, J. M., Kamar, E., & Yafeh, Y. (2020). The effect of minority veto rights on controller pay tunneling. Journal of Financial Economics, 138(3), 777–788. https://doi.org/10.1016/j.jfineco.2020.06.012 DOI: https://doi.org/10.1016/j.jfineco.2020.06.015
[7] Gao, K. J., Shen, Y. R., & Chan, K. C. (2021). Does analyst following restrain tunneling? Evidence from brokerage closures and mergers. Finance Research Letters, 41, 101849. https://doi.org/10.1016/j.frl.2021.101849 DOI: https://doi.org/10.1016/j.frl.2020.101849
[8] Hao, Y., Li, J., & Wei, Z. (2022). Can industry expert independent directors improve capital allocation efficiency? Empirical evidence from A-share listed companies. Accounting Research, (5), 65–76. (Original work published in Chinese)
[9] Huang, J. (2024). Can the implementation of the new Securities Law curb large shareholder tunneling? Accounting Research, (10), 82–94. (Original work published in Chinese)
[10] Jiang, G., Lee, C. M. C., & Yue, H. (2010). Tunneling through intercorporate loans: The China experience. Journal of Financial Economics, 98(1), 1–20. https://doi.org/10.1016/j.jfineco.2010.05.005 DOI: https://doi.org/10.1016/j.jfineco.2010.05.002
[11] Jiang, W., Wan, H., & Zhao, S. (2016). Reputation concerns of independent directors: Evidence from individual director voting. The Review of Financial Studies, 29(3), 655–696. https://doi.org/10.1093/rfs/hhv127 DOI: https://doi.org/10.1093/rfs/hhv127
[12] Johnson, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2000). Tunneling. American Economic Review, 90(2), 22–27. https://doi.org/10.1257/aer.90.2.22 DOI: https://doi.org/10.1257/aer.90.2.22
[13] Li, M., & Ye, Y. (2016). Empirical study on the impact of negative media coverage on controlling shareholder tunneling behavior. Management Review, 28(1), 73–82. (Original work published in Chinese)
[14] Li, S., Shao, H., & Zhang, W. (2025). Limited partnership agreement structure and independent director dissent behavior. Accounting Research, (3), 179–192. (Original work published in Chinese)
[15] Luo, D., & Tang, Q. (2007). Market environment and controlling shareholders' "tunneling" behavior: Empirical evidence from Chinese listed companies. Accounting Research, (4), 69–74, 96. (Original work published in Chinese)
[16] Tang, Q., Luo, D., & Wang, L. (2005). Large shareholders' tunneling and checks and balances: Evidence from the Chinese market. China Accounting Review, (1), 63–86. (Original work published in Chinese)
[17] Ye, K., Lu, Z., & Zhang, Z. (2007). Can independent directors curb large shareholders' "tunneling"? Economic Research Journal, (4), 101–111. (Original work published in Chinese)
[18] Ye, K., Zhu, J., Lu, Z., & Zheng, D. (2011). Independence of independent directors: Evidence based on board voting. Economic Research Journal, 46(1), 126–139. (Original work published in Chinese)
[19] Zheng, Z., Li, M., Jin, T., & Deng, K. (2022). Limited partnership agreement structure and listed company governance. Management World, 38(7), 184–201. (Original work published in Chinese)
[20] Zhi, X., & Tong, P. (2005). Earnings management, control transfer and independent director turnover: Also on the exertion of independent director governance role. Management World, (11), 137–144. (Original work published in Chinese)
Downloads
Published
Issue
Section
License
Copyright (c) 2026 International Journal of World Economic Research
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
