Expropriation through connected-party transaction : the case of Hong Kong


Student thesis: Doctoral Thesis

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  • Yuehua QI

Related Research Unit(s)


Awarding Institution
  • Lun Cheung Edwin LAI (Supervisor)
  • Aristotelis STOURAITIS (Supervisor)
Award date15 Feb 2008


This dissertation examines whether the pricing of connected transactions is driven by tunneling purpose to benefit controlling shareholders at the expense of minority shareholders. I also explore whether the pricing decision is influenced by specific corporate governance and information disclosure characteristics. The study investigates two types of connected transactions, connected party acquisition and connected party sales, in Hong Kong from the year 1998 to 2000. The samples of connected transactions include 51 connected party transactions and 78 connected party acquisitions. For comparison, the samples of arm’s length transactions are constructed, containing 63 asset sales and 62 asset acquisition. The empirical results suggest that the pricing decision of connected transactions is affected by the tunneling incentives of controlling shareholders. Compared with firms conducting arms’ length transactions, I find that the firms sell assets at lower price to their connected parties, and that they acquire assets at higher price from their connected parties. These results support the tunneling view that the substantial discretionary power held by controlling shareholders allows them to expropriate firm wealth at the expense of minority shareholders. In Hong Kong, I do not find systematic evidence that strong corporate governance mechanisms play a role in eliminating connected transactions. There is limited evidence that fuller information disclosure helps in curbing tunneling behaviors of controlling shareholder through connected transactions.

    Research areas

  • Cases, China, Eminent domain, Hong Kong