Political Connections, Founder-Managers, and Their Impact on Tunnelling in China's Listed Firms

We investigated the impact of manager’s political connections and founder status on tunnelling in China’s listed firms from 2004 to 2010. By classifying the political connections into three dimensions with two categories of controlling ownerships, we find that the overall political connections of managers is negatively related to tunnelling in private firms but positively related to tunnelling in SOEs. The CPC/CPPCC-type connection is likely to protect firms from tunnelling, while the official-type connection facilitates tunnelling from firms. The impact of these two types of political connection on tunnelling is stronger at the central level than the local level. A chairman’s political connection has significantly greater influence on tunnelling than the CEO’s connection. We also find that firms with founder-managers have a stronger resistance to tunnelling than those with non-founder-managers, which is still observed at firms with politically connected founder-managers. Our results show that the incentives of various managers towards tunnelling depends on their motivation for establishing relevant political connections.