Examining the Influential Role of Family CEO and Investment on Tunneling: A BoundTest Approach

Abstract

Tunneling is one of the ferocious corporate frauds mostly practiced in concentrated firms. This creates principal-principal agency conflict which influences the entire company operation and discourages investors. This study examined whether growth opportunities and family chief executive officer (CEO) smooth the way for tunneling practices in concentrated firms. The study analyzed panel quantitative data through a fixed effect model and autoregressive distributed lagged (ARDL) to forecast the short and long-run nexus. The finding shows that an increase in investment for expansion purposes creates a way for outward tunneling, which means that controlling shareholders secure their private benefits while availing growth opportunities. In addition, the study forecasts that these positive nexuses will be sustained significantly in the short and long run. Further, the current study also found that family CEOs tackle and minimize expropriation due to sustaining business, getting growth, and having a good reputation in the market. The study helped the regulatory body design policy, providing thorough information to investors strengthening governance mechanisms, and protecting shareholder's rights. The findings contribute to understanding governance dynamics in concentrated firms and highlight the need for regulatory measures to curb tunneling.