Corporate Governance and Tunneling: Empirical Evidence from Turkey

This study investigates whether internal governance mechanisms affect tunneling through intercorporate loans for a sample of Turkish listed non-financial firms over the period 2006 to 2014. While the findings reveal a significant and positive relationship between state ownership and tunneling and a significant and negative relationship between foreign ownership and tunneling, the relationship between family ownership and tunneling is non-linear. In addition, while board size is negatively associated with tunneling, independent directors do not prevent the embezzlement of resources. Furthermore, the results indicate that while older firms, firms with family chairman and higher growth opportunities are more likely to engage in tunneling activities, firm size, high cash holding, leverage and financial distress do not affect tunneling.