Cross-ownership and tunnelling: evidence from China

Multiple shareholding institutional investors and green governance of heavy‐polluting industries

“…First, based on the hypothesis of diminishing marginal cost of governance, MSIIs with a larger equity stake and more investment options can accumulate governance experience in different companies, which has the effect of diminishing marginal governance costs and performing an effective corporate governance function. Therefore, MSIIs have extensive governance experience, effectively mitigate agency problems, and perform their regulatory duties (He et al, 2019; Ramalingegowda et al, 2021; Tang et al, 2023). Existing research supports the hypothesis.…”

“…Ramalingegowda et al (2021) show that MSII could limit the opportunity for management to manipulate earnings, restrain earnings management, and improve the quality of accounting information. Tang et al (2023) show that MSII may restrain controlling shareholders from tunneling. Second, based on the social network function of chain shareholding, MSIIs can transfer information and experience among firms and help to break down barriers to information and technology transfer (Brooks et al, 2018; Du et al, 2023; Zhang, Pan, & Lv, 2022).…”

“…Research offers two perspectives on MSII's governance effects on environmental performance. Positively, from the diminishing marginal cost of governance viewpoint, MSII can supervise and incentivize management, curtailing the tunneling activities of major shareholders and resolving the issues of resource scarcity and motivational inadequacies in green governance, thereby enhancing environmental outcomes (Tang et al, 2023; Zhang, Li, et al, 2022). Additionally, leveraging its social network, MSII may facilitate the dissemination of innovative knowledge, helping to overcome the technical barriers in green governance (Du et al, 2023).…”