Sari, Djajadikerta & Baridwan: Asset Tunneling – Does Corporate Governance Matter?

ABSTRACT:

It has been suggested that tunneling activities through related party transactions is one of the most challenging aspects of corporate governance in Asian countries. However, studies that focus on the effectiveness of corporate governance in relation to tunneling are still limited and the results have been inconclusive. This study tries to develop a detection model to distinguish related party transactions that can be categorised as tunneling activities, and to examine whether corporate governance mechanisms can explain the tunneling activities in Indonesian listed companies. The main findings of this study suggest that companies with concentrated ownerships have a greater tendency to conduct tunneling transactions compared to companies with dispersed ownerships, and the overall corporate governance mechanisms implemented by the companies could not be used as predictors for tunneling behaviour.

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