Multiple large shareholders, excess leverage and tunneling: evidence from an emerging market

Agyenim Boateng*, Wei Huang*

*Corresponding author for this work

    Research output: Contribution to journalArticle

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    Research Question/Issue
    Past empirical efforts in corporate governance have examined the effects of large shareholders with excess control rights on tunneling activities. However, no study has systematically investigated the effects of multiple large shareholders on excess leverage policies and tunneling in an emerging country environment where minority rights protection is weak. In this study, we examine the role of multiple large shareholders and the effects of control contestability of multiple large shareholders on firm excess leverage decision and tunneling by controlling shareholders.

    Research Findings/Insights
    Using a sample of 2,341 Chinese firms for the years 2001 to 2013, we document that the contestability of multiple non-controlling large shareholders relative to controlling shareholders reduces the adoption of excess leverage policies, tunneling and enhances capital investment. Another intriguing finding is that the government, as a controlling shareholder, exerts significant influence and reduces the monitoring effectiveness of multiple larger shareholders.

    Theoretical/Academic Implications
    By addressing the role of multiple large shareholders on excess leverage decisions, this study makes an important contribution to the corporate governance literature. We extend the recent developments in agency theory regarding the role of multiple large shareholders in constraining expropriation of controlling shareholders with excess control rights and their effect on firm leverage decisions. Our results support the theoretical models which indicate that the presence of multiple large shareholders is an important and efficient internal governance mechanism that mitigates a firm's agency costs, particularly, in an emerging market environment where corporate governance is weak and inadequate to curb the tunneling problem.
    Original languageEnglish
    Pages (from-to)58-74
    Number of pages14
    JournalCorporate Governance
    Issue number1
    Early online date3 Sep 2016
    Publication statusPublished - Jan 2017



    • corporate governance
    • large shareholders
    • tunneling

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