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Can Independent Directors Deter the Tunneling of Large Shareholders?

Ye Kangtao(University of North Carolina,USA)Lu Zhengfei and Zhang Zhihua(Guanghua School of Management,Peking University)  
We examine the impacts of independent directors on the tunneling of large shareholders in China's stock market.Specifically,we study whether independent directors can reduce the fund embezzlement of large shareholders from the listed companies.Similar to previous literature,we do not find the significant relation between the percentage of independent directors and the fund embezzlement of large shareholders in OLS regressions.Further analyses demonstrate,however,the percentage of independent directors is an endogenous variable.After controlling the endogeneity issue,the percentage of independent directors is negatively related to the fund embezzlement of large shareholders,implying that the previous research which do not find the negative relation between independent directors and tunneling may be subject to model misspecification.Our conclusions are robust to various proxies for the fund embezzlement of large shareholders.
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