Market Valuation Effects and Investor Perceptions of Connected Transactions: An Empirical Analysis from The Stock Exchange of Thailand
Main Article Content
Abstract
This study investigated the market reactions to connected transaction announcements in the Stock Exchange of Thailand (SET) and examined investor perceptions of wealth expropriation from minority shareholders within business groups. The event study methodology was used to analyze cumulative abnormal returns for all connected transactions announced by SET-listed firms from 2014 to 2019. The sample was further divided into two subgroups based on the majority stockholder’s cash-flow rights in the listed firm compared with those of the connected party. To assess statistically significant differences in market responses between these subgroups, Propensity Score Matching (PSM) was employed. The results showed positive market reactions to announcements in the days preceding formal disclosure—potentially due to information leakage or anticipatory trading—but provided no evidence of a sustained positive reaction following the announcement date (day 0). Specifically, transactions involving firms with high cash-flow-rights, generated negative abnormal returns after the announcement, suggesting that the overall market response was not uniformly favorable. Investors appear to perceive these transactions as potential channels for wealth expropriation (“propping”) rather than unequivocally value-enhancing events, a view confirmed by the PSM analysis. This study contributes to understanding how markets respond to connected transactions and highlights implications for wealth transfer within business groups. The findings have practical significance for companies engaging in connected transactions and for investors seeking to incorporate propping risk in portfolio and risk management.
Article Details
References
Bae, G. S., Cheon, Y. S., & Kang, J. K. (2008). Intragroup propping: evidence from the stock-price effects of earnings announcements by Korean business groups. Review of Financial Studies, 21(5), 2015-2060. https://doi.org/10.1093/rfs/hhn055
Berkman, H., Cole, R. A., & Fu, L. J. (2009). Expropriation through loan guarantees to related parties: Evidence from China. Journal of Banking & Finance, 33(1), 141-156. https://doi.org/10.1016/j.jbankfin.2007.11.001
Bertrand, M., Mehta, P., & Mullainathan, S. (2002). Ferreting out tunneling: An application to Indian business groups. Quarterly Journal of Economics, 117(1), 121-148. https://doi.org/10.1162/003355302753399463
Brown, S. J., & Warner, J. B. (1980). Measuring security price performance. Journal of Financial Economics, 8(3), 205-258. https://doi.org/10.1016/0304-405X(80)90002-1
. (1985). Using daily stock returns: The case of event studies. Journal of Financial Economics, 14(1), 3-31. https://doi.org/10.1016/0304-405X(85)90042-X
Cheung, Y. L., Jing, L., Lu, T., Rau, P. R., & Stouraitis, A. (2009). Tunneling and propping up: an analysis of related party transactions by Chinese listed companies. Pacific-Basin Finance Journal, 17(3), 372-393. https://doi.org/10.1016/j.pacfin.2008.10.001
Cheung, Y. L., Rau, P. R., & Stouraitis, A. (2006). Tunneling, propping, and expropriation: evidence from connected party transactions in Hong Kong. Journal of Finance Economics, 82(2), 343-386. https://doi.org/10.1016/j.jfineco.2004.08.012
Cho, S., & Lim, K. M. (2018). Tunneling by related-party transactions: Evidence from Korean conglomerates. Asian Economic Journal, 32(2), 147–164. https://doi.org /10.1111/asej.12146
Choi, M. (2018). Propping and pyramids in family business groups: Evidence from Korean chaebols [Doctoral dissertation, Queensland University of Technology]. QUT ePrints. https://repository.arizona.edu/handle/10150/620615.
Claessens, S., Djankov, S., & Lang, L. H. P. (2000). The separation of ownership and control in East Asian corporations. Journal of Financial Economics, 58(1-2), 81-112. https://doi.org/10.1016/S0304-405X(00)00067-2
Connelly, J. T., Limpaphayom, P., & Nagarajan, N. J. (2012). Form versus substance: the effect of ownership structure and corporate governance on firm value in Thailand. Journal of Banking & Finance, 36(6), 1722-1743. https://doi.org/10.1016/j.jbankfin .2012.01.017
Faccio, M., Lang, L. H. P., & Young, L. (2001). Dividends and expropriation. American Economic Review, 91(1), 54–78. https://doi.org/10.1257/aer.91.1.54
Friedman, E., Johnson, S., & Mitton, T. (2003). Tunneling and propping. Journal of Comparative Economics, 31(4), 732-750. https://doi.org/10.1016/j.jce.2003.08.004
Glaewketgarn, T. (2013). Corporate governance and firm performance of family ownership, control and management firms in Thailand. Journal of International Finance Studies, 13(2), 5-38. http://dx.doi.org/10.18374/JIFS-13-2.1
Gopalan, R., Nanda, V., & Seru, A. (2007). Affiliated firms and financial support: Eevidence from indian business groups. Journal of Financial Economics, 86(3), 759–795. https://doi.org/10.1016/j.jfineco.2006.09.008
Hamid, M. A., Ting, I. W. K., & Kweh, Q. L. (2016). The relationship between corporate governance and expropriation of minority shareholders’ interests. Procedia Economics and Finance, 35, 99–106. https://doi.org/10.1016/S2212-5671(16)00014-9
Hollar, M. K. (2014). Economic analysis of increasing HUD’s manufactured housing inspection label fee. Cityscape, 16(3), 163-168.
Jian, M. & Wong, T. J. (2004). Earnings management and tunneling through related party transactions: Evidence from Chinese Corporate Groups. University of Hong Kong. http://dx.doi.org/10.2139/ssrn.424888
. (2010). Propping through related party transactions. Review of Accounting Study, 15(1), 70–105.
Jiang, G., Lee, C. M. C., & Yue, H. (2010). Tunneling through intercorporate loans: The China experience. Journal of Financial Economics, 98(1), 1–20. https://doi.org /10.1016/j.jfineco.2010.05.002
Joh, S.W. (2003). Corporate governance and firm profitability: evidence from Korea before the economic crisis. Journal of Financial Economics, 68(2), 287–322. https://doi.org /10.1016/S0304-405X(03)00068-0
Khanna, T., & Yafeh, Y. (2007). Business groups in emerging markets: Paragons or Parasites?. Journal of Economic Literature, 45(2), 331-372. https://doi.org/10.1257 /jel.45.2.331
La Porta, R., Lopez-De-Silanes, F., & Shleifer, A. (1999). Corporate ownership around the world. The Journal of Finance, 54(2), 471-517. https://www.jstor.org/stable/2697717
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R.W. (1998). Law and finance. Journal of Political Economy, 106(6), 1113-1155. https://doi.org/10.1086/250042
. (2000). Agency problems and dividend policies around the world. Journal of Finance, 55(1), 1–33. https://doi.org/10.2139/ssrn.52871
. (2002). Investor protection and corporate valuation. Journal of Finance, 57(3), 1147-1170. https://doi.org/10.1111/1540-6261.00457
Leemakdej, A. (n.d.). EVENT STUDY PROGRAM [Software]. Thammasat Business School. http://event.tbs.tu.ac.th
Lemmon, M. L., & Lins, K. V. (2003). Ownership structure, corporate governance, and firm value: evidence from the East Asian financial crisis. Journal of Finance, 58(4), 1445–1468. https://doi.org/10.1111/1540-6261.00573
Lin, Y. H. (2010). Overseeing controlling shareholders: Do independent directors constrain tunneling In Taiwan?. San Diego International Law Journal, 12(2), 363-416.
Lopez-de-Silanes, F. (2002). The politics of legal reform. Economía Journal, 2(2), 91-152. https://doi.org/10.1353/eco.2002.0001
Nurazi, R., Santi, F., & Usman, B. (2015). Tunneling: evidence from Indonesia stock exchange. Asian Academy of Management Journal of Accounting and Finance, 11(2), 127-150. https://ssrn.com/abstract=2822925
Panda, B., & Leepsa, N. M. (2017). Agency theory: Review of theory and evidence on problems and perspectives. Indian Journal of Corporate Governance, 10(1), 74 –95. https://doi.org/10.1177/09746862177014
Peng, W. Q., Wei, K. C. J., & Yang, Z. (2011). Tunneling or propping: Evidence from connected transactions in China. Journal of Corporate Finance, 17(2), 306-325. https://doi.org/10.1016/j.jcorpfin.2010.08.002
Polsiri, P. & Wiwattanakantang, Y. (2006). Thai business groups: Crisis and restructuring.
In S. J. Chang (Eds), Business groups in East Asia. Oxford University Press. https://doi.org/10.1093/acprof:oso/9780199287345.003.0007
Sari, R. C. (2010). Tunneling, overlapping owner and investor protection: Evidence from merger and acquisition in Asia. Journal of Modern Accounting and Auditing, 6(5), 46.
Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737–789. https://doi.org/10.2307/2329497
Tareq, M., Houqe, M. N., Van Zijl, T., Taylor, D. W., & Morley, C. (2017). Discriminatory related party transactions: a new measure. International Journal of Accounting & Information Management, 25(4), 395-412. http://dx.doi.org/10.2139/ssrn.2190897
Wiwattanakantang, Y. (2001). Controlling shareholders and corporate value: Evidence from Thailand. Pacific-Basin Finance Journal, 9(4), 323–362. https://doi.org/10.1016 /S0927-538X(01)00022-1
Ying, Q., & Wang, L. (2013). Propping by controlling shareholders, wealth transfer and firm performance: Evidence from Chinese listed companies. China Journal of Accounting Research, 6(2), 133-147. https://doi.org/10.1016/j.cjar.2013.02.001
Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G. D., & Jiang, Y. (2008). Corporate governance in emerging economies: A review of the principal-principal perspective. Journal of Management Studies, 45(1), 196-219. https://doi.org/10.1111/j.1467-6486.2007.00752.x