Major Shareholders' Shareholding and Related Party Transactions: Alignment of Interests or Tunneling?

We examine whether major shareholders increase related party transactions (RPTs) through their shareholding and whether such transactions enhance corporate value or result in tunneling that harms the company in this study. Using a sample of all Chinese A-share listed companies from 2019 to 2023. We analyze the effect of major shareholders' shareholding on the level of RPTs. Next, we explore whether major shareholders use RPTs for wealth transfer. Finally, we investigate the extent to which major shareholders engage in tunneling through RPTs.The findings reveal a significant positive relationship between the shareholding of major shareholders and the level of RPTs(operating RPTs),while a significant negative correlation between major shareholders and the non-operating related party transactions.Our results show that the interaction term between RPTs and major shareholders' shareholding is positively correlated with Tobin's Q. However, we find no significant relationship between the interaction term of RPTs and major shareholders' shareholding and the level of earnings management. Similarly, when RPTs are categorized into operating and non-operating transactions, no evidence supports that such transactions are used for earnings maniulation.