Tunnelling in asset-injecting private placements: evidence from China

Publication Name

Accounting and Finance


Following the reform of shareholder structures in China, the country’s listed companies have seen a boom in asset injection using private equity placements. However, because of continuing weaknesses in corporate governance structures and accounting regulations on related-party transactions, it is possible for controlling shareholders to ‘tunnel’ listed companies through unsound private placements. We find that manipulation of the discount rate offered in private placements, accompanied by earnings management behaviour, is used by controlling shareholders to ‘tunnel’ listed companies during the private placement and asset-injecting process.

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