Controlling shareholder-manager collusion and tunneling: evidence from China

Min Zhang, Shenghao Gao, Xinjiao Guan, Fuxiu Jiang

Research output: Contribution to journalArticleResearchpeer-review

31 Citations (Scopus)


Manuscript Type: Empirical 

Research Question/Issue: This study examines whether and how controlling shareholders collude with managers with respect to tunneling. Research Findings/Insights: Using data from Chinese listed companies, we find evidence consistent with the collusion hypothesis. Specifically, we find that the separation of control and cash flow rights is negatively associated with managerial pay-performance and turnover-performance sensitivity. These results suggest that controlling shareholders with excess control rights collude with managers by weakening performance-based incentives. Further evidence suggests that the negative relation between excess control rights and performance-based incentives is more pronounced in less profitable and less promising firms. We also find preliminary evidence for rent-sharing behavior between controlling shareholders and managers. 

Theoretic/Academic Implications: We incorporate the influence of managers into the agency framework between controlling and minority shareholders and suggest that controlling shareholders and managers expropriate the minority shareholders. We also propose that excess control rights undermine normal, effective, performance-based incentives and induce rent-sharing behavior between controlling shareholders and managers. 

Practitioner/Policy Implications: We advise firms' stakeholders, especially minority shareholders, to detect tunneling by observing executive incentives. We suggest that policy makers pay particular attention to the collusion between tunneling participants rather than merely prohibiting certain tunneling tactics. We also recommend that regulators strengthen corporate governance norms and improve the corporate governance environment.

Original languageEnglish
Pages (from-to)440-459
Number of pages20
JournalCorporate Governance: An International Review
Issue number6
Publication statusPublished - 1 Nov 2014
Externally publishedYes


  • Collusion
  • Corporate governance
  • Performance-based incentives
  • Separation of control and cash flow rights
  • Tunneling

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