Tunneling of ultimate controlling shareholders in pyramidal ownership structure

This paper, based on the data of Chinese family controlled listed corporations and the related party transactions from 2002 to 2004, empirically investigates the ultimate controlling shareholders' tunneling wealth out of the listed corporations by means of related party transaction in pyramidal ownership structure, and examines its effect on corporate valuation and the factors of inducement and constraints related to it. Compared with the research of direct ownership structure and recent literatures in China concerning tunneling, this paper's new finding is that, in the pyramidal ownership structure, the ultimate controlling shareholders do conduct tunneling by manipulating the related party transactions, and deteriorate the value of the listed corporations. Moreover, the tunneling is positively correlated to the divergence between ownership and control of controlling shareholders. In addition, the other large shareholders have constraints effect on the tunneling of ultimate controlling shareholder; however, there is not enough evidence to confirm that independent directors have the similar effect.