Are all forms of ownership prone to tunneling? A meta‐analysis

• Author: Brian K. Boyd,Angelo M. Solarino
• DOI: http://doi.org/10.1111/corg.12344
• Published date: 01 November 2020
• Date: 01 November 2020

REVIEW ARTICLE

Are all forms of ownership prone to tunneling? A meta‐analysis

Angelo M. Solarino

1

| Brian K. Boyd

2

1

Leeds University Business School, The

University of Leeds, Leeds, UK

2

W. A. Franke College of Business, Northern

Arizona University, Flagstaff, Arizona, USA

Correspondence

Angelo M. Solarino, Leeds University Business

School, The University of Leeds, Leeds LS2

9JT, UK.

Email: a.m.solarino@leeds.ac.uk

Abstract

Research Question/Issue: This study seeks to extend agency theory in the context of

tunneling by exploring how different ownertypes seek private benefits of control. Spe-

cifically,we examine how information asymmetriesand board representation createdif-

ferent pressures for tunneling for state‐owned, business group‐owned, and family‐

owned firms.We tested our hypotheses witha meta‐analytic structural equationmodel.

Research Findings/Insights: Our findings show that the relationship between

ownership and tunneling differs acrossowner types in terms of both directionality and

magnitude. Our study offers a substantial theoretical contribution to the principal–

principal problem literature by theorizing and testing variations of the problem among

owners. Our studyalso advances our understanding of the roleof ownership in firms.

Theoretical/Academic Implications: Our findings have important theory‐building

implications for the principal–principal literature. Controlling shareholders have been

linked to performance outcomes or to tunneling in general, yet little is known about

their comparative propensity to engage in tunneling. Our results, however, highlight

that the propensity to engage in tunneling varies substantially among controlling

shareholders. Furthermore, in the robustness checks, we disconfirm some of the

assumptions of the principal–principal literature. This study demonstrates the need

to theorize about specific types of ownership and reassess the core arguments of

principal–principal theory.

Practitioner/Policy Implications: This study offers insights for policymakers inter-

ested in mitigating the risk of minority shareholders being expropriated by the

controlling shareholder. As the key driver of tunneling appears to be access to private

information and knowledge of the firm, we offer recommendations on what

policymakers can do to minimize the asymmetry of information.

KEYWORDS

Corporate governance, expropriation of minority shareholders, meta‐analysis, ownership,

principal–principal problem, tunneling

1|INTRODUCTION

Tunneling, or self‐dealing, is an agency problem that occurs when a

majority shareholder diverts a firm's wealth at the expense of other

shareholders. Tunneling may take in many forms, such as asset

transfers or intragroup loans, that aim to hide or remove valuable

resources from the firm. The label originated from an incident in

the Czech Republic when a firm's assets were literally removed

Received: 31 March 2020 Revised: 24 August 2020 Accepted: 27 August 2020

DOI: 10.1111/corg.12344

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reprodu ction in any medium,

provided the original work is properly cited.

© 2020 The Authors. Corporate Governance: An International Review published by John Wiley & Sons Ltd

488 Corp Govern Int Rev. 2020;28:488–501.wileyonlinelibrary.com/journal/corg