Controlling shareholders, venture capital and expropriation in private placements

This paper investigates the expropriation of minority shareholders in private placements (PPs) conducted by Chinese listed companies and explores the monitoring role of venture capitals (VCs) in mitigating the expropriation. Our empirical analysis reveals that controlling shareholders engage in various opportunistic behaviors around PPs to expropriate value from minority shareholders. Furthermore, we find that the involvement of VCs in listed companies significantly reduces these opportunistic behaviors through improving the information disclosure quality and enhancing the board supervision. Additionally, our further analysis indicates that VC's monitoring effect is particularly pronounced in enterprises with non-government background VC, higher reputation VC and VC syndicate. Our findings suggest that informal interactions between VCs and controlling shareholders may complement formal corporate governance structures, thereby offering additional protection for minority shareholders. • Controlling shareholders’ opportunistic behaviors are divided into compliant and illegal opportunistic behaviors. • Controlling shareholders engage in both types of opportunistic behaviors around private placements. • Venture capitals (VCs) significantly reduce both types of opportunistic behaviors around PPs. • VCs reduce opportunistic behaviors through improving information disclosure quality and enhancing board supervision. • The government background of VCs exacerbates the expropriation through increasing intercorporate loans and insider trading.