The guardians: Do hometown CEOs curb controlling shareholders' tunneling?

• Published in: International review of financial analysis Vol. 96; p. 103602
• Main Authors: Chen, Jing, Gao, Jun, Chan, Kam C., Liu, Xinghe, Xu, Cheng
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.11.2024
• Subjects: Agency problem; Controlling shareholders' tunneling; Hometown identity; Place identity theory; Agency problem; Hometown identity; Controlling shareholders' tunneling; Place identity theory
• ISSN: 1057-5219
• DOI: 10.1016/j.irfa.2024.103602

Motivated by the understudied role of CEO hometown identity in corporate governance, our study explores the impact of CEOs' hometown identity on controlling shareholders' tunneling behavior, from the perspective of place identity theory. Our results based on a sample of listed Chinese firms from 2008 to 2020 show that CEOs' hometown identity plays an effective corporate governance role in curbing controlling shareholders' tunneling; this finding holds after a battery of robustness tests. Mechanism analyses reveal that hometown CEOs' reputation concern and risk aversion are the mechanisms underlying this focal effect. Moreover, cross-sectional analyses reveal that this governance role of CEO hometown identity is more pronounced in firms exhibiting greater tunneling incentives, under private ownership, and subject to less rigorous internal and external monitoring mechanisms. Collectively, our findings further the understanding of how CEO hometown identity and its interactions with different governance factors (both internal and external, at firm- and region-levels) influence controlling shareholders' tunneling. •We examine the effect of CEOs' hometown identity on tunneling in China.•We show that hometown identity curbs controlling shareholders' tunneling.•The finding holds after a battery of robustness tests.•CEOs' reputation concern and risk aversion are the mechanisms.