Supervision by Distracted Institutional Investors and Majority Shareholder Tunnelling: Causal Evidence from China

The results of the study indicate a positive correlation between the level of distraction of institutional investors and the expropriation behavior of major shareholders. Furthermore, when independent institutional investors with stronger monitoring motives become distracted, they significantly increase the incentive for major shareholders’ expropriation. Companies with stronger external monitoring exhibit a more pronounced effect of increased expropriation by major shareholders when institutional investors are distracted. Finally, the study finds that the internal capital market makes state-owned enterprises more susceptible to major shareholders’ expropriation when institutional investors are distracted compared to private enterprises. In summary, this paper broadens the research on the influence of the “tunneling” motivation of major shareholders, verifies the impact of institutional investors’ limited attention on the capital market, and explores the external governance role of institutional investors.