Does information connectivity affect tunneling: Evidence from a quasi-natural experiment

Abstract

This study utilizes the Broadband China initiative as a natural experiment to empirically investigate the effects of enhanced information connectivity on the tunneling behaviors of major shareholders. The results indicate that the BC curtails tunneling activities by controlling shareholders, thereby safeguarding the interests of minority investors. The main conclusions remain robust across multiple sensitivity analyses. Mechanism testing further demonstrates that the BC alleviates information asymmetry. Furthermore, the analysis of diversity indicates that the suppressive effect of BC is particularly evident among companies characterized by lower institutional ownership, limited media coverage, weaker internal controls, non-state ownership, or operating in regions with inferior legal systems. Overall, the implementation of the BC policy enhances information flow, strengthens stakeholder oversight over listed companies, and better protects the rights of minority and mid-sized shareholders.