ABOUT BOOK

Purpose This study aims to take advantage of the unprecedented anti-corruption campaign launched in China in December 2012 and examine the effect of improved public governance on tunneling. Design/methodology/approach This study uses a sample of Shanghai and Shenzhen Stock Exchange listed companies from 2010 to 2014 and conduct regression analyses to investigate the effect of improved public governance attributed to the anti-corruption campaign on tunneling. Findings This study finds that the level of tunneling decreased significantly after the anti-corruption campaign, suggesting that increased public governance effectively curbs tunneling. Cross-sectional results show that this mitigating effect is more pronounced for non-SOE firms, especially non-SOE firms with political connections, firms audited by non-Big 8 auditors, firms with a large divergence between control rights and cash flow rights and firms located in areas with lower marketization. Practical implications This study highlights the importance of anti-corruption initiatives in improving public governance and in turn reducing tunneling. This study provides important implications for many other emerging economies to improve public governance. Originality/value This study contributes to the literature on the role of public governance in constraining corporate agency problems and advances the understanding of the economic consequences of China's anti-corruption campaign in the context of tunneling.