Tunneling; Board Independence; Minority Shareholders; Ownership Concentration
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Tunneling is a type of expropriation of resources from the minority shareholders of a company by its largest shareholder. Previous research has found mixed results on the relationship between board independence and tunneling, and on the relationship between minority shareholder concentration and tunneling. We examine whether more independent boards may be better at limiting tunneling when there is greater minority shareholder concentration. Using a sample of 3,084 firm-years of Chinese companies, we find a significant interaction between board independence and minority shareholder concentration in a model of tunneling. These results suggest that more independent boards are more likely to inhibit tunneling when minority shareholdings have greater voting influence over board elections through concentration of shareholding.