Non-state Shareholders’ Governance and Tunneling in SOEs

Controlling the tunneling behavior of major shareholders is the key to the healthy development of financial markets. This paper takes the mixed ownership reform of SOEs in China as the background, examines whether non-state shareholders reduce the tunneling behavior of SOEs. This paper found that, first, the shareholding of non-state shareholders can significantly reduce the capital occupation, but there is no significant relationship with related transactions. Second, the appointment of directors by non-state shareholders can significantly reduce related transactions and the capital occupation of large shareholders. These results suggest that non-state shareholders can indeed reduce the tunneling of SOEs and that appointed directors have a more active role. In addition, strengthening internal controls is a possible governance mechanism.