Political connections, founder-managers, and their impacts on tunneling in China\u27s listed firms

We investigate the impacts of manager\u27s political connections and founder status on tunneling using a sample of China\u27s listed firms from 2004 to 2010. We find that firms with founder-managers have less tunneling than firms without them, but the impacts of the interaction between political connection and founder status differ among different types of ownership structures. Specifically, we find that private firms with founder-managers face less tunneling than those without, and while a manager\u27 founder status has no significant impacts on tunneling at local SOEs, their political connections are positively related to tunneling when local government has no effective control of the firm. Manager\u27s political connection is found to be negatively related to tunneling at central SOEs, and this negative impact is even stronger if the manager is also a founder. We also find that although newly promulgated criminal laws and regulations have reduced the market-wide severity of tunneling, they are less effective for SOEs and firms with politically connected managers. We also discuss the differences between official-type political connection and CPC/CPPCC-type political connection, and the differences between a chairman\u27s political connection and a CEO\u27s political connection, with regard to their impacts on tunneling