Independent Directors’ Diligence and Tunneling: An Investigation from Audit Committee

Independent Directors’ Diligence and Tunneling: An Investigation from Audit Committee | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Article Independent Directors’ Diligence and Tunneling: An Investigation from Audit Committee Jingwei Zhang This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-7404401/v1 This work is licensed under a CC BY 4.0 License Status: Under Review Version 1 posted 18 You are reading this latest preprint version Abstract This study examines the impact of independent directors’ diligence within audit committees on mitigating controlling shareholders’ tunneling behavior. Specifically, this study explores how this mitigating effect performs under different frequency of audit committee meetings and geographical location of independent directors. The study also investigates the moderating roles of independent directors’ financial expertise and the quality of internal control. Using a multi-dimensional panel fixed effects model, this study reveals that the effectiveness of independent directors’ diligence in mitigating tunneling is more pronounced with higher audit committee meeting frequency and greater convenient geographical location. Moreover, the financial expertise of independent directors and strong internal control significantly strengthen this mitigating effect. This study contributes to the literature by expanding the understanding of independent directors’ role in corporate governance, highlighting the importance of both external governance mechanisms and internal control systems in reducing agency costs. The findings offer valuable policy implications for strengthening corporate governance practices in China. JEL Classification: M40; M41; G30 Business and commerce/Business and management Social science/Business and management Social science/Social policy Independent directors audit committee tunneling behavior internal controls 1. Introduction The practices of controlling shareholders expropriating company value to themselves at the expense of minority shareholders and creditors (tunneling) continue to pose a significant challenge for policymakers to address (Gözlügöl, 2022 ). Johnson et al. ( 2000 ) refer to the expropriation by controlling shareholders as “tunneling”, which refers to the transfer of assets and profits out firms for the benefit of controlling shareholders. Tunneling increases the conflict between controlling shareholders and minority shareholders (Wu & Dong, 2021 ), highlighting the negative economic impact on the company. This issue is especially concerning in economies with intense ownership disputes, such as China (Zhang, 2020 ), where tunneling requires greater attention from regulators. In context of this study, tunneling refers to the activities that controlling shareholders participate in related-party loan or other items of funding expropriation. In the corporate governance framework, independent director is generally considered to play a crucial role (Zerni et al., 2010 ), given their ability to oversee management effectively and safeguard shareholder interests through unbiased oversight and strategic guidance (Amin et al., 2024 ). The effectiveness of independent directors in corporate governance has long been discussed and disputed. Prior literature indicates that independent directors exercise their rights only they are diligent in participation in corporate governance (Liu et al., 2014 ). Liu et al. ( 2014 ) reveal a negative correlation between independent directors’ diligence in board meetings and tunneling in China. This finding implies that the diligence of independent directors can mitigate tunneling. However, previous research does not acknowledge that the role of independent directors extends beyond the boardroom. In fact, the audit committee plays an even more significant role in curbing tunneling in China. In China, the audit committee provide a platform for independent directors to address the issue of tunneling. According to the China Securities Regulatory Commission (CSRC), the audit committee should continuously monitor the company’s guarantees and examine whether the controlling shareholders and their related parties are involved in fund appropriation. Therefore, the audit committee bears direct responsibility for overseeing tunneling activities (the issue of related-party fund appropriation mentioned by the CSRC). Furthermore, the CSRC stipulates in the Guidelines for the Independent Director System of Listed Companies that more than half of the audit committee members must be independent directors, and the convener must be an accounting professional among the independent directors. Meanwhile, the State Council of China released the Notice of The State Council on Approving and Forwarding CSRC’s Opinions on Improving Quality of Listed Companies in 2005. This regulation enhances the supervision on tunneling in listed companies. Market regulators have imposed strict requirements on the attendance of independent directors. In 2005, the Shenzhen Stock Exchange (SZSE) issued the Filing Measures for Independent Directors of the Shenzhen Stock Exchange , requiring independent directors to meet a certain attendance rate. In 2009, the Shanghai Stock Exchange (SHSE) went further by introducing the Election and Conduct Guidelines for Independent Directors of the Shanghai Stock Exchange , stipulating that independent directors who arbitrarily miss meetings (including audit committee meetings) will lose their board membership qualifications. Song et al. ( 2021 ) believe that the enforcement of these regulations has significantly boosted the attendance rate of independent directors. Since the CSRC mandates that Chinese listed companies disclose the attendance of all independent directors at audit committee meetings, this study benefits from a unique dataset. This enables an in-depth examination of how the diligence of independent directors mitigates tunneling behavior and which factors might influence this mitigating effect. Previous studies (An et al., 2024 ; Foo & Zain, 2010 ; Liu et al., 2014 ) have examined the positive impact of independent director diligence on corporate governance, but they have only considered independent directors’ attendance at board meetings and have not accounted for the fact that their professional expertise is primarily demonstrated through the audit committee, when addressing tunneling issues. In addition, which factors influence the audit committee members’ efforts to restrict tunneling have not yet been explored in the current literature. Motivated by previous studies, we investigate the impact of independent directors’ diligence in the audit committee on tunneling. Specifically, we explore the varying manifestations of this impact from two perspectives: the frequency of audit committee meetings and the geographical location of independent directors within the audit committee. Moreover, we expect to reveal whether financial expertise of independent directors and internal control quality play significant moderating roles in this effect. Through data analysis using a multi-dimensional panel fixed effects model, this study reveals that in listed companies where the audit committee meets more frequently and where the independent directors reside in the same location as the company’s headquarter, the mitigating effect of independent directors’ diligence on tunneling is more pronounced. Additionally, the financial expertise of independent directors and the quality of internal control significantly moderate this mitigating effect. This study contributes to the existing stream of research on independent directors’ role in corporate governance in several ways. Firstly, this study addresses the limitations in measuring independent directors’ diligence in previous studies by investigating their performance in audit committee. Prior studies prevailingly use independent directors’ attendance at board meetings as a proxy for diligence. However, based on an understanding of the responsibilities of audit committees in China—specifically, that the audit committee serves as the primary platform for independent directors to govern tunneling rather than the board—this study examines the governance effects of independent directors’ diligence within the audit committee. Furthermore, this study extends previous research (El et al., 2024 ; Ibrahim et al., 2020 ; Truong & Nguyen, 2024 ) by suggesting that the governance effect on reduce the tunneling behavior of controlling shareholders. In addition, this study also provides the first support showing that a convenient geographical location benefits independent directors in governing controlling shareholders’ tunneling behavior, contributing empirical evidence to the application of behavioral finance in corporate governance. Additionally, this study is the first to reveal the moderating roles of financial expertise and internal control quality, further highlighting the necessity of strengthening internal control systems in listed companies of China. The remainder of this study is organized as follows. Section 2 provides the literature review and hypotheses development. Section 3 describes methodology. Section 4 discusses the empirical results. Section 5 concludes this study. 2. Literature review and hypothesis development 2.1. Independent directors’ diligence and tunneling Agency theory posits that insiders are opportunistic, and therefore, adequate monitoring or control mechanisms need to be in place to protect the interests of minority shareholders from their expropriation by controlling shareholders. The role of independent directors in monitoring the tunneling of funds from minority shareholders by controlling shareholders is particularly emphasized (Liu et al., 2014 ). Chintrakarn et al. ( 2022 ); Gong et al. ( 2021 ); Tam et al. ( 2021 ) provide evidence that the independence and objectivity of independent directors reduce corporate agency problems. However, Merendino and Melville ( 2019 ) believe that independence and objectivity can not guarantee that independent directors will protect investors. An et al. ( 2024 ); Gutiérrez and Sáez ( 2013 ) argue that the more important role of independent directors should be reflected through diligent work rather than independence and objectivity. Independent directors’ attendance can be viewed as a signal of diligence (Liu et al., 2014 ). Foo and Zain ( 2010 ) find that more diligent directors in boarding room are associated with higher liquidity in Malaysia. An et al. ( 2024 ) find that the higher the proportion of independent directors attending major company meetings in person, the better the corporate performance in China. According to agency theory, as the core body of corporate governance, the audit committee focuses on supervising financial reporting and internal control processes. It is an important platform for discovering and curbing tunneling behaviors, indicated by CSRC regulations in China. Diligent independent directors on the audit committee can participate more deeply in the review of financial information and the supervision of major transactions including tunneling activities through expressing opposed opinion, thereby effectively curbing the possibility of controlling shareholders expropriating company resources. Diligence in the audit committee provides independent directors with more opportunities to identify tunneling activities. Therefore, independent directors’ diligence as proxied by the attendance in audit committee meetings is expected to result in more effective monitoring of tunneling. This reasoning leads to our first hypothesis as following. H1 Independent directors’ diligence in audit committee meetings is negatively related with tunneling. 2.2. Audit committee Previous literature has emphasized the critical role of audit committees as key monitoring mechanism (Rizzotti & Greco, 2013 ). According to CSRC, audit committees are tasked with overseeing financial reporting and internal control processes, which are essential in curbing tunneling. Damisa et al. ( 2024 ) find that audit committee are negatively related to the tunnelling behavior. The frequency of audit committee meetings is a relatively good proxy for effectiveness. Frequent meetings ensure timely communication, foster accountability, and enhance the committee’s ability to detect tunneling. Therefore, attending meetings in person is an effective way for them to supervise controlling shareholders (Song et al., 2021 ). In context China, the regulatory requirements for independent directors mandate that audit committees must hold at least four meetings per year. This regulation is similar to those in some other Asian countries (Biswas et al., 2023 ), such as Bangladesh and Pakistan. Prior studies indicate that boards that meet frequently are likely to contribute to its effectiveness (Foo & Zain, 2010 ). Building on agency theory, an increase in the frequency of audit committee meetings strengthens the governance effect by enhancing its ability to oversee controlling shareholders. This, in turn, creates a favorable environment for independent directors to exercise diligence and play a more active role in supervising and mitigating tunneling. This leads to our second hypothesis as following. H2 The negative effect of independent directors’ diligence on tunneling are more pronounced in listed firms with more frequent audit committee meetings. 2.3. Geographic location of independent directors The mode of attending meetings inevitably has a significant impact on independent directors’ attendance. On the one hand, this study limits the mode of participation in audit committee meetings to in-person attendance (rather than proxy attendance). On the other hand, the geographic location of independent directors is another important factor to consider. The farther the directors live from the company, the higher the cost of attending meetings, which affects their willingness to attend. Consequently, geographic location influences the governance effectiveness of independent directors. Across China’s vast territory, independent directors located far from enterprises often face challenges in accessing critical information and building reputations. These limitations hinder their ability to effectively perform supervisory and advisory roles (Shang et al., 2023 ). Quan and Zhang ( 2021 ) argue that when independent directors are located farther from the company headquarters, they attend board meetings less frequently and express dissenting opinions at a lower rate, indicating that the geographic location of independent directors affects their work efficiency. In addition, Su et al. ( 2024 ) suggest that shorter geographic location of independent directors can enhance their supervisory effectiveness. In this study, shorter geographic location refers to the alignment between the independent director’s place of residence and the company’s headquarter. According to Short geographic distances reduce travel costs and physical fatigue (Godin & Kok, 1996 ; Rehman et al., 2023 ), which suggests that reduced cognitive and physical strain enhances decision-making efficiency, enabling independent directors to better detect and address tunneling behaviors. Therefore, we propose the following hypothesis. H3 When the independent director’s geographic location of residence aligns with the company’s headquarter, the negative effect of independent directors’ diligence on tunneling are more pronounced. 2.4. Financial expertise of independent directors Previous literature shows that independent director expertise has been widely recognized as a crucial governance mechanism in mitigating agency problems. For example, independent directors with legal expertise ensure compliance with regulatory frameworks, reducing corporate misbehavior and tunneling (Dharwadkar et al., 2021 ; Liu & Sun, 2021 ). Financially skilled independent directors improve reporting quality, enhance transparency, and discourage earnings management (Bilal et al., 2023; Malik & Shafie, 2021 ; Mehdi et al., 2021 ). This directly limits the opportunities for tunneling by improving monitoring and reducing information asymmetry. According to resource dependence theory, specialized knowledge allows independent directors to better understand complex financial statements, detect anomalies, and scrutinize transactions that may involve resource expropriation by controlling shareholders. Therefore, independent directors with financial expertise play a crucial role in enhancing corporate governance by effectively identifying and mitigating tunneling behavior. In context of China, the Guideline for Independent Directors of Listed Companies mandates that the audit committee should be convened by a financial professional among the independent directors. Additionally, the audit committee is responsible for reviewing financial information and monitoring the use of funds by related parties. Therefore, independent directors with financial expertise are better equipped to identify whether the company’s financial activities involve tunneling, thereby enhancing diligent oversight and effectively curbing tunneling behavior. Based on the theoretical reasoning, the following hypothesis is proposed. H4 Independent director expertise significantly moderates the negative relationship between independent directors’ diligence and tunneling behavior. Specifically, independent director expertise strengthens the role of diligence in mitigating tunneling. 2.5. The role of internal control Internal control systems establish standardized procedures for critical operations, including financial reporting, asset management, and corporate guarantees (Jayanthi, 2005 ). The audit committee, where independent directors play a leading role, relies on these mechanisms to continuously monitor and evaluate the company’s compliance with governance practices (Krishnan, 2005 ). A strong internal control system amplifies the negative relationship between independent directors’ diligence and tunneling. That is, independent directors who diligently perform their roles are more effective at limiting tunneling when internal control systems are sound and well-implemented. Guideline for Independent Directors of Listed Companies stipulates that the audit committee should continuously monitor the implementation of guarantees provided by the company, which falls within the scope of internal control. It is evident that a sound internal control system is conducive to the fulfillment of independent directors’ duties. From an agency theory perspective, a well-functioning internal control system strengthens the negative relationship between independent directors’ diligence and tunneling. Specifically, effective internal controls reduce information asymmetry (Li et al., 2022 ) and enhance independent directors’ ability to monitor and question managerial decisions, thereby limiting tunneling and safeguarding shareholder interests. Based on the theoretical reasoning, we provide the following hypothesis. H5 Internal control significantly moderates the negative relationship between independent directors’ diligence and tunneling behavior. Specifically, high-quality internal control strengthens the role of diligence in mitigating tunneling. 3. Research methodology To explore the governance role of independent directors’ diligence in the audit committee, this study introduces a multidimensional fixed-effects model for regression analysis, as it controls for the potential influence of time, industry factors, and individual effects, ensuring more robust findings of this study. 3.1. Sample selection and data We construct a sample of 3,998 listed companies in China, drawing data from CSMAR (China Management Science Academic Research) database spanning the period from 2009 to 2023. The period span starts at 2009 because that the information of independent directors’ attendance data was first disclosed in 2009. We begin with a primary sample of 4,040 listed companies in China, which are from A-share market. We then exclude 58 financial companies from the dataset, due to the different accounting regulations of financial industry. Consequently, our final sample consists of 3,998 companies, yielding a total of 34,553 firm-year observations. 3.2. Variable definition 3.2.1. Dependent variable: tunneling Although controlling shareholders may employ various tunneling channels to expropriate minority shareholders, Cheung et al. ( 2009 ) suggest that it is common for the controlling shareholders in listed companies to extract funds from minority shareholders in the form of related-party loans. Moreover, according to the Guidelines for Independent Directors of Listed Companies , the audit committee is required to supervise the board of directors in disclosing and taking recovery measures regarding the controlling shareholders’ appropriation of funds through related-party loans. This regulation strengthens the persuasiveness of using related-party loans as a measure of tunneling in this study. In China, related-party loans are typically recorded as “Other Receivables” and account for the majority proportion of this term (Gao & Kling, 2008 ). Following Jiang et al. ( 2010 ); Zhang et al. (2020), we use Other Receivables ( OREC ) as the measurement of tunneling in this study. To ensure that the regression results are not affected by extreme values, this study applies the natural logarithm transformation to OREC . 3.2.2. Independent variable: independent directors’ diligence Previous literature (Foo & Zain, 2010 ; Kalelkar, 2016 ; Rizzotti & Greco, 2013 ; Yuan et al., 2020 ) argues that independent directors’ attendance at meetings reflects their commitment to fulfilling responsibilities. Higher attendance indicates active participation in board and a greater focus on overseeing corporate governance. In context of audit committee, independent directors’ diligence refers to the attendance at audit committee meetings. Following Biswas et al. ( 2023 ); Kalelkar ( 2016 ); Yuan et al. ( 2020 ), we measure independent directors’ diligence ( Dilig ) by attendance at audit committee meetings. Given that each audit committee consists of multiple independent directors, we use the average attendance rate of independent directors at audit committee meetings to measure Dilig . 3.2.3. Moderating variables: financial expertise and internal control We include financial expertise and internal control as moderating variables in this study. Financial expertise in this study refers to independent directors having experience in finance-related work. We construct a continuous variable ( FinExp ) to measure the percentage of independent directors with financial expertise among the audit committee members. Accordingly, we check the resumes of independent directors in audit committees to identify those with financial expertise. The number of financially specialized independent directors is then divided by the total number of audit committee members to calculate the percentage of FinExp . In addition, Zimon et al. ( 2021 ) believe that high-quality internal control can enhance the ability to address tunneling. This study expects that the improvement of internal control quality ( ICQ ) can significantly moderate the mitigating effect of independent directors’ diligence on tunneling. The CSMAR database provides evaluations of internal control quality for Chinese listed companies. We consider companies without internal control deficiencies to have high-quality internal control. Therefore, we introduce a dummy variable to measure ICQ , assigning a value of 1 when a company has no internal control deficiencies and 0 otherwise. 3.2.4. Control variables Several control variables which are expected to affect the dependent variable are included. Specifically, we include leverage ( Lev ), net cash flow ( Cashflow ), growth in revenue ( Growth ), negative net income ( Loss ), board size ( Board ), percentage of independent directors among board ( Indep ), duality of CEO and chairman ( Dual ), shareholding of top 10 shareholders ( Top10 ), state-owned enterprise ( SOE ), listing years ( ListAge ), top 10 auditor ( Big10 ). Table 1 shows the summary of variable definitions. 3.2.5. Other variables To measure the frequency of audit committee meetings and the geographical location of independent directors influence the impact of independent directors’ diligence on tunneling, this study defines two binary variables: ACmeeting and Location . We first collect data on the annual number of audit committee meetings ( ACmeetingtimes ) and then evaluate whether the frequency met the CSRC’s requirement (a minimum of four meetings per year). If ACmeetingtimes is equal to or exceeds four, ACmeeting is assigned a value of 1; otherwise, it is assigned a value of 0. For the geographical location of independent directors, we retrieve data on their residence location from the CSMAR database and matched it with the company’s headquarter address (at the city level). If the independent director’s residence aligns with the company’s headquarter, it indicates that they are located in the same city. Notably, the CSMAR database only reports the geographical locations of independent directors with financial expertise, as their financial background is more critical to audit committee decisions compared to other independent directors. If all financially specialized independent directors reside in the same city as the company’s headquarter, Location is assigned a value of 1; otherwise, it is assigned a value of 0. Table 1 Definition of variables Variable Abbreviation Definition Tunneling OREC The natural logarithm of other receivables. Independent directors’ diligence Dilig The average attendance rate of independent directors at audit committee meetings. Frequency of audit committee meetings ACmeeting A binary variable which is assigned a value of 1 if audit committee meetings times are equal to or exceeds four; otherwise, it is assigned a value of 0. Geographical location Location A binary variable which is assigned a value of 1 if all financially specialized independent directors reside in the same city as the company’s headquarter; 0, otherwise. Internal control ICQ A dummy variable which equals 1 if a company is reported with internal control weakness; 0 otherwise. Financial expertise FinExp The percentage of independent directors with financial expertise among the audit committee members. Leverage Lev The ratio of total liabilities to total assets. Net cash flow Cashflow The annual percentage change in total revenue or total assets. Growth in revenue Growth The annual percentage change in total revenue. Negative net income Loss A dummy variable which equals one if the company experiences a negative net income and zero otherwise. Board size Board The natural logarithm of the number of directors. Percentage of independent directors Indep The percentage of independent directors to all directors among board. Duality of CEO and chairman Dual A dummy variable that equals one if the CEO and the chairman of a firm are the same person and 0 otherwise. Top 10 shareholders Top 10 The percentage of shares held by the top 10 shareholders State-owned enterprise SOE A dummy variable that equals one if a company is ultimately controlled by the state and 0 otherwise. Listing years ListAge The number of years since the company was listed on stock exchange. Big 10 auditors Big 10 A dummy variable that equals one if the company is a client of the top 10 (by revenue) accounting firms in China and 0 otherwise. 3.3. Model specification To investigate the relation between independent directors’ diligence and tunneling, we construct the multidimensional fixed-effect regression model. $$\:OREC=\:{\beta\:}_{0}+{\beta\:}_{1}\:Dilig+{\beta\:}_{2}Controls+\sum\:{\beta\:}_{i}Industry+\sum\:{\beta\:}_{i}Year+\sum\:{\beta\:}_{i}Firm+\epsilon\:$$ 1 In model (1), the dependent variable is OREC , while independent variable is Dilig . Controls includes all the control variables in Section 3.2.4 . Fixed effects at three levels ( Industry, Year, Firm ) have been incorporated into the model. In addition, we also use model (1) to investigate the influence of frequency of audit committee meetings and geographical location of independent directors by subgroup analysis. In the robust check, we adopt a strategy of replacing the dependent variable. Specifically, we use residuals of the regression model ( OREC_r ) as substitutes for OREC , and then perform regressions using model (1). To explore the role of internal control in moderating the relationship between independent directors’ diligence and tunneling, we construct the model (2). $$\:OREC=\:{\beta\:}_{0}+{\beta\:}_{1}\:Dilig+{\beta\:}_{2}FinExp+{\beta\:}_{3}Dilig\_FinExp+{\beta\:}_{4}Controls+\sum\:{\beta\:}_{i}Industry+\sum\:{\beta\:}_{i}Year+\sum\:{\beta\:}_{i}Firm+\epsilon\:$$ 2 In model (2), FinExp represents financial expertise of independent directors. We introduce an interaction term, Dilig_FinExp , to examine the moderating effect of FinExp . The specific definitions of other variables can be found in Table 1 . To explore the role of internal control in moderating the relationship between independent directors’ diligence and tunneling, we construct the model (3). $$\:OREC=\:{\beta\:}_{0}+{\beta\:}_{1}\:Dilig+{\beta\:}_{2}ICQ+{\beta\:}_{3}Dilig\_ICQ+{\beta\:}_{4}Controls+\sum\:{\beta\:}_{i}Industry+\sum\:{\beta\:}_{i}Year+\sum\:{\beta\:}_{i}Firm+\epsilon\:$$ 3 In model (3), ICQ represents internal control quality. We use an interaction term, Dilig_ICQ , to examine the moderating effect of ICQ . The specific definitions of other variables can be found in Table 1 . 3.4. Endogeneity issues Potential endogeneity issues may raise doubts about the findings of this study. To address this, we employ the 2SLS-instrumental variable approach and the system GMM (Generalized Method of Moments) model. 4. Results and Discussion Table 2 Descriptive analysis Variables Obs Mean Std.Dev. Min Max p1 p99 OREC 34,553 17.034 2.287 0.000 26.332 11.75 22.309 Dilig 34,553 0.872 0.121 0.350 1.000 0.600 1.000 ACmeetingtimes 34,006 4.854 1.760 0.000 22.000 1.000 10.000 ACmeeting 34,006 0.689 0.463 0.000 1.000 0.000 1.000 Location 33,958 0.368 0.482 0.000 1.000 0.000 1.000 FinExp 33,391 0.537 0.230 0.100 1.000 0.289 0.827 ICQ 30,152 0.988 0.107 0.000 1.000 0.000 1.000 Lev 34,553 0.464 1.376 -0.195 178.345 0.052 0.980 Cashflow 34,553 0.043 0.126 -11.056 2.457 -0.196 0.249 Growth 34,553 0.001 1.277 -0.008 186.876 -0.007 -0.002 Loss 34,553 0.116 0.320 0.000 1.000 0.000 1.000 Board 34,553 2.129 0.204 0.693 3.045 1.609 2.708 Indep 34,553 0.375 0.056 0.000 1.000 0.333 0.571 Dual 34,553 0.279 0.449 0.000 1.000 0.000 1.000 Top10 34,553 0.583 0.158 0.013 1.012 0.223 0.906 SOE 34,553 0.355 0.478 0.000 1.000 0.000 1.000 ListAge 34,553 2.063 0.941 0.000 3.466 0.000 3.332 Big10 34,553 0.475 0.499 0.000 1.000 0.000 1.000 This table presents summary statistics of the sample and variables. Variables are defined in Table 1 . 4.1. Descriptive results Table 2 reports the descriptive statistics of variables in this study. The results for Dilig (with an average value of 0.872) indicate that the vast majority of independent directors met the attendance requirements. Between 2005 and 2009, the Shenzhen Stock Exchange and the Shanghai Stock Exchange each issued regulatory guidelines for independent directors, imposing strict attendance requirements. These measures may have encouraged independent directors to enhance their diligence. Based on the combined statistical results of ACmeetingtimes and ACmeeting , the vast majority of listed companies meet the regulatory requirements for the frequency of audit committee meetings. The mean value of Location is 0.368, indicating that 36.8% of independent directors in the sample reside in the same city as the company’s headquarter. The results for FinExp (mean value = 0.537) imply that over 50% of audit committee members have financial expertise. Although the CSRC does not mandate a threshold for the proportion of financially experienced independent directors, Gilani et al. ( 2021 ) and Chen et al. ( 2020 ) argue that directors with financial expertise contribute to improved corporate governance and performance. ICQ reports a mean value of 0.988, suggesting that the internal control quality of most Chinese listed companies is relatively high, providing a favorable internal governance environment to mitigate tunneling. The correlation matrix of variables indicates no evidence of severe multicollinearity among the variables (see Appendix 1). Additionally, based on the results of the Variance Inflation Factor (VIF), where the VIF value for each variable is below 2 (see Appendix 2), multicollinearity is unlikely to pose any issues for our study. 4.2. Baseline Regression Table 3 reports the baseline regression results examining the relationship between independent directors’ diligence and tunneling. Column (1) provides the results of regression within overall sample. The result shows that Dilig is negatively related with OREC within overall sample, suggesting that greater diligence of independent directors in audit committee is associated with reduced tunneling activities. This result is consistent with our hypothesis ( H1 ) and Liu et al. ( 2014 ), which indicate that increasing diligence of independent directors is associated with reduced tunneling. Column (2) reports a significant negative correlation between independent directors’ diligence and Table 3 Baseline regression Variables (1) (2) (3) (4) (5) OREC OREC OREC OREC OREC Dilig -0.841** -0.824** -0.291 -1.302* -0.709* (-2.465) (-2.044) (-0.093) (-1.862) (-1.761) Lev -0.009 -0.013 1.660*** 0.007 -0.012 (-0.647) (-1.005) (4.118) (0.333) (-0.757) Cashflow -0.129 -0.117 -0.188 -0.287* -0.18 (-0.894) (-0.804) (-0.360) (-1.804) (-0.775) Growth 0.005* -0.034 0.000 0.002 1.710* (1.773) (-0.571) (0.252) (0.943) (1.854) Loss 0.156*** 0.165*** -0.058 0.148** 0.175*** (4.611) (4.564) (-0.612) (2.167) (4.542) Board 0.525*** 0.547*** 0.245 0.376* 0.635*** (4.342) (4.317) (0.535) (1.844) (4.385) Indep 0.856*** 0.918*** -0.376 1.105** 0.558* (3.308) (3.634) (-0.294) (2.163) (1.754) Dual 0.004 0.025 -0.081 -0.038 0.017 (0.131) (0.780) (-0.540) (-0.789) (0.506) Top10 0.992*** 1.049*** 0.609 0.663** 1.040*** (6.112) (6.874) (0.477) (2.377) (5.157) SOE 0.147 0.190* 0.092 0.190 0.121 (1.439) (1.788) (0.504) (1.289) (0.936) ListAge 0.713*** 0.698*** 0.828*** 0.630*** 0.766*** (12.747) (12.761) (5.810) (8.785) (10.202) Big10 0.011 0.002 0.009 0.037 0.002 (0.372) (0.067) (0.112) (0.887) (0.052) Industry effect Yes Yes Yes Yes Yes Year effect Yes Yes Yes Yes Yes Firm effect Yes Yes Yes Yes Yes Observations 34,857 32,163 1,843 13,324 20,634 R-squared 0.802 0.804 0.874 0.830 0.815 This table presents the baseline regression of multidimensional fixed-effects model. Column (1) reports the result of regression within overall sample. Columns (2)–(3) report the results of group testing using ACmeeting , while the Columns (4)–(5) present the results of group testing using Location . Robust t-statistics in parentheses. *** p < 0.01, ** p < 0.05, * p < 0.1. OREC is the dependent variable in all columns. tunneling in the sample with a higher frequency of audit committee meetings. However, this relationship is not significant in Column (3) (the sample with a lower frequency of audit committee meetings). This result is consistent with our hypothesis ( H2 ). Columns (4) and (5) present the regression results for cases where the geographic location of independent directors aligns with and differs from the company’s headquarters, respectively. While the regression results consistently support the role of independent directors’ diligence in mitigating tunneling, the results in Column (4) show a stronger effect than Column (5). This finding aligns with our hypothesis ( H3 ), suggesting that independent directors’ governance role in mitigating tunneling is more pronounced when their geographic location matches that of the company’s headquarter. 4.3. Robust tests Table 4 Alternative measurement of OREC by residuals value (1) (2) (3) (4) (5) Variables OREC_r OREC_r OREC_r OREC_r OREC_r Dilig -0.809** -0.797* -0.310 -1.271* -0.696* (-2.366) (-1.971) (-0.098) (-1.808) (-1.721) Controls Included Included Included Included Included Industry effect Yes Yes Yes Yes Yes Year effect Yes Yes Yes Yes Yes Firm effect Yes Yes Yes Yes Yes Observations 34,553 31,879 1,828 13,214 20,457 R-squared 0.719 0.726 0.808 0.779 0.734 In this table, Column (1) reports the result of regression within overall sample. Columns (2)–(3) report the results of group testing using ACmeeting , while the Columns (4)–(5) present the results of group testing using Location . Robust t-statistics in parentheses. *** p < 0.01, ** p < 0.05, * p < 0.1. OREC_r is the dependent variable in all columns. Table 4 provides the results of regression analyses using an alternative measurement of OREC , denoted as OREC_r , which represents the residual values obtained from model (4). Following previous studies (Agarwal & Chaudhry, 2022 ; Wang & Xiao, 2011 ), this approach isolates the portion of OREC that cannot be explained by observed factors, allowing for a more precise examination of the relationship between independent variables and deviations in tunneling. $$\:OREC=\:{\beta\:}_{0}+{\beta\:}_{1}Controls+\sum\:{\beta\:}_{i}Industry+\sum\:{\beta\:}_{i}Year+\sum\:{\beta\:}_{i}Firm+\epsilon\:$$ 4 In Table 4 , Dilig exhibits a consistently negative coefficient in overall sample, indicating that greater diligence by independent directors is associated with decreased tunneling. Column (2) (higher meeting frequency) shows a significant negative relationship between Dilig and tunneling, while Column (3) (lower meeting frequency) shows an insignificant coefficient for Dilig . Column (4) (independent directors located the same city with headquarter) shows a significant negative relationship between Dilig and tunneling, while Column (5) (directors located away from headquarters) shows a weaker negative relationship. In summary, the findings in Table 4 are consistent with baseline regression, reinforcing the conclusion that independent directors’ diligence plays a significant role in mitigating tunneling. 4.4. Endogeneity tests Table 5 Results of 2SLS-IV and GMM model Variables 2SLS GMM First stage Second stage Highway 0.071*** (25.230) L.OREC 0.516*** (16.216) Dilig -2.447*** -25.769** (-2.712) (-2.333) Lev -0.001 0.068 -0.136 (-1.050) (1.032) (-0.841) Cashflow 0.000 -0.848** -5.456*** (0.470) (-2.129) (-4.425) Growth -0.001 -0.001 0.951 (-1.490) (-0.421) (0.514) Loss -0.000 0.025 1.256*** (-0.340) (0.637) (3.950) Board 0.001 1.676*** 2.110 (1.200) (26.546) (1.042) Indep 0.005** 4.294*** 2.719 (2.59) (18.614) (0.426) Dual -0.000 -0.138*** -1.658** (-0.61) (-6.007) (-2.277) Top10 -0.001 1.775*** 6.002*** (-0.71) (22.856) (6.801) SOE -0.000 0.206*** 1.247** (-1.51) (7.981) (2.240) ListAge -0.000 0.806*** 0.721*** (-0.12) (52.708) (7.125) Big10 -0.000 0.237*** 0.153** (-0.44) (10.870) (2.430) Constant 0.926*** 11.280*** 23.666** (246.20) (12.112) (2.332) Observations 35,046 35,046 31,218 R-squared 0.398 0.185 MES 230.067 Critical value 16.38 AR (1) 0.286 AR (2) 0.815 This table presents results of 2SLS-IV (two-step stage Instrumental Variable method) and system GMM (Generalized Method of Moments) model. MES represents the minimum eigenvalue statistic in the first stage of 2SLS-IV, while Critical value means critical value for instrumental variable validity test. AR (1) and AR (2) report the p-value of first-order and second-order serial correlation, respectively. Robust z-statistics in parentheses. *** p < 0.01, ** p < 0.05, * p < 0.1. 4.4.1. 2SLS-IV approach Potential endogeneity problems (such as reverse causality or omitted variables) may cause our baseline results to be unconvincing. For instance, firms with severe tunneling issues intentionally hire more diligent directors. In addition, omitted variable bias could influence both tunneling and board composition. To address these concerns, we include the 2SLS-IV approach. Specifically, we use Highway (whether the independent director’s city of residence has high-speed rail) as an instrumental variable for Dilig (independent directors’ diligence). This approach is based on the following reasons. On one hand, the availability of high-speed rail in an independent director’s city of residence significantly impacts their ability to travel efficiently to meetings. High-speed rail reduces travel time and fatigue, potentially increasing their attendance rate and engagement in governance activities (Shang & Yuan, 2023 ). On the other hand, the presence of high-speed rail in a director’s city is likely to be exogenous to firm-specific factors. Since whether one city constructs high-speed rail is determined by regional infrastructure policies and unrelated to the governance of individual firms, the instrument variable ( Highway ) does not directly influence tunneling except through its impact on Dilig . Table 5 reports the results of 2SLS-IV approach. For the first stage, the coefficient of Highway is positive and significant, which indicates Highway is positively related with Dilig . For the second stage, the coefficient of Dilig is negative and statistically significant. The minimum eigenvalue statistic (MES) is 230.067, which is significantly higher than the Critical value of 16.38. Therefore, Highway is a strong instrumental variable, providing robust support for the negative association between independent directors’ diligence and tunneling. 4.4.2. GMM model Tunneling behavior can be continuous and persistent (Shi et al., 2024), indicating potential serial correlation. To address this issue, we employ a system GMM model. Specifically, we include the lagged dependent variable, L.OREC , to tackle the endogeneity problem caused by serial correlation. Table 5 provides the result of GMM model test. In Table 5 , the coefficient of L.OREC is positive and significant. This finding indicates that firms which engaged in tunneling in the past, are more likely to continue such practices in subsequent periods. The coefficient for Dilig is negative and significant, indicating that diligence negatively influences tunneling, which is consistent with baseline regression. In addition, both AR (1) and AR (2) are not significant in p-value, which suggests there is no serial correlation. 4.5. The moderating role of financial expertise and internal control Table 6 The moderating role of financial expertise and internal control quality Variables (1) (2) OREC OREC Dilig -1.488*** -0.823** (-3.523) (-2.401) ICQ 0.001 (0.043) Dilig_ICQ -0.030*** (-3.875) FinExp -0.494* (-1.798) Dilig_Fin -0.201** (1.997) Lev -0.008 -0.008 (-0.622) (-0.537) Cashflow -0.106 -0.128 (-0.760) (-0.868) Growth 0.005 -0.053* (1.591) (-1.800) Loss 0.150*** 0.146*** (4.782) (4.732) Board 0.820*** 0.561*** (4.407) (4.669) Indep 0.694** 0.757*** (2.553) (2.776) Dual -0.006 0.017 (-0.232) (0.687) Top10 0.995*** 1.016*** (6.099) (5.520) SOE 0.106 -0.001 (1.093) (-0.011) ListAge 0.729*** 0.837*** (11.978) (12.647) Big10 0.004 0.005 (0.151) (0.197) Industry effect Yes Yes Year effect Yes Yes Firm effect Yes Yes Observations 33,391 30,152 R-squared 0.763 0.778 FinExp means financial expertise in this table. ICQ means internal control quality. Variables are defined in Table 1 . Dilig_Fin is the interaction term of Dilig and FinExp . Dilig_ICQ is the interaction term of Dilig and ICQ . Robust t-statistics in parentheses. *** p < 0.01, ** p < 0.05, * p < 0.1. OREC is the dependent variable in all columns. Table 6 examines the moderating effects of financial expertise ( FinExp ) and internal control quality ( ICQ ) on the relationship between independent directors’ diligence ( Dilig ) and tunneling ( OREC ). In both columns, Dilig is negatively and significantly associated with OREC , confirming that increased diligence by independent directors reduces tunneling. Financial expertise has a negative and significant effect on OREC , suggesting that independent directors with financial expertise are better equipped to reduce tunneling. The interaction term Dilig _ Fin is negative and significant, indicating that financial expertise strengthens the negative relationship between Dilig and OREC. Financial experts may complement the efforts of diligent independent directors by providing more financial insights and guidance, leading to more effective monitoring of tunneling activities. 5. Conclusion This study investigates the impact of independent directors’ diligence within the audit committee on controlling shareholders’ tunneling, focusing on how this governance effect is influenced by the governance environment. Specifically, it explores the varying effects from two perspectives: the frequency of audit committee meetings and the geographical location of independent directors. Furthermore, the study explores the moderating roles of independent directors’ financial expertise and internal control. We find that in companies where audit committees meet more frequently and where independent directors reside in the same location as the company’s headquarter, the mitigating effect of independent directors’ diligence on tunneling is more pronounced. Independent directors’ financial expertise and the quality of internal controls significantly enhance this mitigating effect. Different from prior literature, which use independent directors’ attendance at board meetings as a proxy for diligence, this study shifts the focus to the audit committee, recognizing it as the primary platform for independent directors to address tunneling issues in China. Moreover, this study expands the understanding of the audit committee’s role, demonstrating its governance effect on reducing controlling shareholders’ tunneling. Besides, it highlights that convenient geographical location enables independent directors to perform governance duties more effectively. Additionally, the study reveals the moderating role of independent directors’ expertise and internal control in reducing tunneling behavior. This study makes several contributions to the present literature. First, it addresses the limitations in prior measurements of independent directors’ diligence by focusing on their performance within the audit committee. The study extends agency theory by highlighting the role of independent directors’ diligence within audit committees as a mechanism to mitigate controlling shareholders’ tunneling. Second, it provides the first empirical evidence that geographical convenience enhances independent directors’ ability to mitigate tunneling, contributing to the broader understanding of behavioral factors in corporate governance. Third, this study contributes to resource dependence theory by demonstrating that independent directors’ financial expertise act as critical resources that enhance governance effectiveness. The interaction between these resources highlights the complementary roles of expertise in strengthening corporate oversight and reducing tunneling. Finally, this study provides a deeper understanding of how internal and external governance mechanisms can work together to align the interests of controlling shareholders and other stakeholders. Based on the findings, this study offers the following policy recommendations for enhancing the regulatory effectiveness of independent directors in China. First, policies should emphasize the audit committee’s critical function in governing tunneling behavior, promoting efficient meeting practices. Furthermore, selection processes should prioritize candidates with financial expertise and consider geographical proximity to ensure effective governance. In addition, policymakers should encourage listed companies to develop robust internal control systems to complement the governance role of independent directors. Declarations Competing interests The authors report there are no competing interests to declare. Funding This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors. Author Contribution J.Z. conceived the idea, designed the study, performed all experiments and analyses, interpreted the results, wrote the manuscript, prepared the tables, and approved the final version for submission. Data Availability The data that support the findings of this study are available upon reasonable request. References Agarwal, A., & Chaudhry, N. (2022). Foreign controlling shareholders and corporate investment. Journal of International Financial Markets, Institutions and Money , 80 . Amin, A., Mollah, S., Kamal, S., Zhao, Y., & Simsek, R. (2024). Independent directors’ connectedness and bank risk-taking. Journal of Financial Stability , 75 . An, X., Liang, J., Ye, X., & Wang, X. (2024). Independent directors’ duty performance and corporate green innovation. Finance Research Letters , 62 . 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The effect of geographic distance on independent directors’ performance from the perspective of inefficient investment. Economic Research-Ekonomska Istraživanja , 36 (2), 2142810. Shi, Xiang, E., & Shi, H. (2024). Environmental investment and tunneling: A substitute for corporate governance. International Review of Economics & Finance , 96 . Song, L., Tian, G. G., & Liao, G. (2021). External regulation, independent director attendance, and governance effects. China Journal of Accounting Research , 14 (2), 101-128. Su, K., Yang, R., Cui, Q., & Wang, T. (2024). The geographic distance of independent directors and stock price crash risk: Evidence from China [Review]. Research in International Business and Finance , 69 , Article 102270. Tam, O. K., Liang, H.-Y., Chen, S.-H., & Liu, B. (2021). Do valued independent directors matter to commercial bank performance? International Review of Economics & Finance , 71 , 1-20. Truong, T. N., & Nguyen, V. C. (2024). 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Introduction","content":"\u003cp\u003eThe practices of controlling shareholders expropriating company value to themselves at the expense of minority shareholders and creditors (tunneling) continue to pose a significant challenge for policymakers to address (G\u0026ouml;zl\u0026uuml;g\u0026ouml;l, \u003cspan citationid=\"CR17\" class=\"CitationRef\"\u003e2022\u003c/span\u003e). Johnson et al. (\u003cspan citationid=\"CR22\" class=\"CitationRef\"\u003e2000\u003c/span\u003e) refer to the expropriation by controlling shareholders as \u0026ldquo;tunneling\u0026rdquo;, which refers to the transfer of assets and profits out firms for the benefit of controlling shareholders. Tunneling increases the conflict between controlling shareholders and minority shareholders (Wu \u0026amp; Dong, \u003cspan citationid=\"CR42\" class=\"CitationRef\"\u003e2021\u003c/span\u003e), highlighting the negative economic impact on the company. This issue is especially concerning in economies with intense ownership disputes, such as China (Zhang, \u003cspan citationid=\"CR46\" class=\"CitationRef\"\u003e2020\u003c/span\u003e), where tunneling requires greater attention from regulators. In context of this study, tunneling refers to the activities that controlling shareholders participate in related-party loan or other items of funding expropriation.\u003c/p\u003e\u003cp\u003eIn the corporate governance framework, independent director is generally considered to play a crucial role (Zerni et al., \u003cspan citationid=\"CR44\" class=\"CitationRef\"\u003e2010\u003c/span\u003e), given their ability to oversee management effectively and safeguard shareholder interests through unbiased oversight and strategic guidance (Amin et al., \u003cspan citationid=\"CR2\" class=\"CitationRef\"\u003e2024\u003c/span\u003e). The effectiveness of independent directors in corporate governance has long been discussed and disputed. Prior literature indicates that independent directors exercise their rights only they are diligent in participation in corporate governance (Liu et al., \u003cspan citationid=\"CR27\" class=\"CitationRef\"\u003e2014\u003c/span\u003e). Liu et al. (\u003cspan citationid=\"CR27\" class=\"CitationRef\"\u003e2014\u003c/span\u003e) reveal a negative correlation between independent directors\u0026rsquo; diligence in board meetings and tunneling in China. This finding implies that the diligence of independent directors can mitigate tunneling. However, previous research does not acknowledge that the role of independent directors extends beyond the boardroom. In fact, the audit committee plays an even more significant role in curbing tunneling in China.\u003c/p\u003e\u003cp\u003eIn China, the audit committee provide a platform for independent directors to address the issue of tunneling. According to the China Securities Regulatory Commission (CSRC), the audit committee should continuously monitor the company\u0026rsquo;s guarantees and examine whether the controlling shareholders and their related parties are involved in fund appropriation. Therefore, the audit committee bears direct responsibility for overseeing tunneling activities (the issue of related-party fund appropriation mentioned by the CSRC). Furthermore, the CSRC stipulates in the \u003cem\u003eGuidelines for the Independent Director System of Listed Companies\u003c/em\u003e that more than half of the audit committee members must be independent directors, and the convener must be an accounting professional among the independent directors. Meanwhile, the State Council of China released the \u003cem\u003eNotice of The State Council on Approving and Forwarding CSRC\u0026rsquo;s Opinions on Improving Quality of Listed Companies\u003c/em\u003e in 2005. This regulation enhances the supervision on tunneling in listed companies.\u003c/p\u003e\u003cp\u003eMarket regulators have imposed strict requirements on the attendance of independent directors. In 2005, the Shenzhen Stock Exchange (SZSE) issued the \u003cem\u003eFiling Measures for Independent Directors of the Shenzhen Stock Exchange\u003c/em\u003e, requiring independent directors to meet a certain attendance rate. In 2009, the Shanghai Stock Exchange (SHSE) went further by introducing the \u003cem\u003eElection and Conduct Guidelines for Independent Directors of the Shanghai Stock Exchange\u003c/em\u003e, stipulating that independent directors who arbitrarily miss meetings (including audit committee meetings) will lose their board membership qualifications. Song et al. (\u003cspan citationid=\"CR37\" class=\"CitationRef\"\u003e2021\u003c/span\u003e) believe that the enforcement of these regulations has significantly boosted the attendance rate of independent directors. Since the CSRC mandates that Chinese listed companies disclose the attendance of all independent directors at audit committee meetings, this study benefits from a unique dataset. This enables an in-depth examination of how the diligence of independent directors mitigates tunneling behavior and which factors might influence this mitigating effect.\u003c/p\u003e\u003cp\u003ePrevious studies (An et al., \u003cspan citationid=\"CR3\" class=\"CitationRef\"\u003e2024\u003c/span\u003e; Foo \u0026amp; Zain, \u003cspan citationid=\"CR12\" class=\"CitationRef\"\u003e2010\u003c/span\u003e; Liu et al., \u003cspan citationid=\"CR27\" class=\"CitationRef\"\u003e2014\u003c/span\u003e) have examined the positive impact of independent director diligence on corporate governance, but they have only considered independent directors\u0026rsquo; attendance at board meetings and have not accounted for the fact that their professional expertise is primarily demonstrated through the audit committee, when addressing tunneling issues. In addition, which factors influence the audit committee members\u0026rsquo; efforts to restrict tunneling have not yet been explored in the current literature. Motivated by previous studies, we investigate the impact of independent directors\u0026rsquo; diligence in the audit committee on tunneling. Specifically, we explore the varying manifestations of this impact from two perspectives: the frequency of audit committee meetings and the geographical location of independent directors within the audit committee. Moreover, we expect to reveal whether financial expertise of independent directors and internal control quality play significant moderating roles in this effect.\u003c/p\u003e\u003cp\u003eThrough data analysis using a multi-dimensional panel fixed effects model, this study reveals that in listed companies where the audit committee meets more frequently and where the independent directors reside in the same location as the company\u0026rsquo;s headquarter, the mitigating effect of independent directors\u0026rsquo; diligence on tunneling is more pronounced. Additionally, the financial expertise of independent directors and the quality of internal control significantly moderate this mitigating effect.\u003c/p\u003e\u003cp\u003eThis study contributes to the existing stream of research on independent directors\u0026rsquo; role in corporate governance in several ways. Firstly, this study addresses the limitations in measuring independent directors\u0026rsquo; diligence in previous studies by investigating their performance in audit committee. Prior studies prevailingly use independent directors\u0026rsquo; attendance at board meetings as a proxy for diligence. However, based on an understanding of the responsibilities of audit committees in China\u0026mdash;specifically, that the audit committee serves as the primary platform for independent directors to govern tunneling rather than the board\u0026mdash;this study examines the governance effects of independent directors\u0026rsquo; diligence within the audit committee. Furthermore, this study extends previous research (El et al., \u003cspan citationid=\"CR11\" class=\"CitationRef\"\u003e2024\u003c/span\u003e; Ibrahim et al., \u003cspan citationid=\"CR19\" class=\"CitationRef\"\u003e2020\u003c/span\u003e; Truong \u0026amp; Nguyen, \u003cspan citationid=\"CR40\" class=\"CitationRef\"\u003e2024\u003c/span\u003e) by suggesting that the governance effect on reduce the tunneling behavior of controlling shareholders. In addition, this study also provides the first support showing that a convenient geographical location benefits independent directors in governing controlling shareholders\u0026rsquo; tunneling behavior, contributing empirical evidence to the application of behavioral finance in corporate governance. Additionally, this study is the first to reveal the moderating roles of financial expertise and internal control quality, further highlighting the necessity of strengthening internal control systems in listed companies of China.\u003c/p\u003e\u003cp\u003eThe remainder of this study is organized as follows. Section \u003cspan refid=\"Sec2\" class=\"InternalRef\"\u003e2\u003c/span\u003e provides the literature review and hypotheses development. Section \u003cspan refid=\"Sec8\" class=\"InternalRef\"\u003e3\u003c/span\u003e describes methodology. Section \u003cspan refid=\"Sec18\" class=\"InternalRef\"\u003e4\u003c/span\u003e discusses the empirical results. Section \u003cspan refid=\"Sec26\" class=\"InternalRef\"\u003e5\u003c/span\u003e concludes this study.\u003c/p\u003e"},{"header":"2. Literature review and hypothesis development","content":"\u003cdiv id=\"Sec3\" class=\"Section2\"\u003e\u003ch2\u003e2.1. Independent directors\u0026rsquo; diligence and tunneling\u003c/h2\u003e\u003cp\u003eAgency theory posits that insiders are opportunistic, and therefore, adequate monitoring or control mechanisms need to be in place to protect the interests of minority shareholders from their expropriation by controlling shareholders. The role of independent directors in monitoring the tunneling of funds from minority shareholders by controlling shareholders is particularly emphasized (Liu et al., \u003cspan citationid=\"CR27\" class=\"CitationRef\"\u003e2014\u003c/span\u003e). Chintrakarn et al. (\u003cspan citationid=\"CR8\" class=\"CitationRef\"\u003e2022\u003c/span\u003e); Gong et al. (\u003cspan citationid=\"CR16\" class=\"CitationRef\"\u003e2021\u003c/span\u003e); Tam et al. (\u003cspan citationid=\"CR39\" class=\"CitationRef\"\u003e2021\u003c/span\u003e) provide evidence that the independence and objectivity of independent directors reduce corporate agency problems. However, Merendino and Melville (\u003cspan citationid=\"CR30\" class=\"CitationRef\"\u003e2019\u003c/span\u003e) believe that independence and objectivity can not guarantee that independent directors will protect investors. An et al. (\u003cspan citationid=\"CR3\" class=\"CitationRef\"\u003e2024\u003c/span\u003e); Guti\u0026eacute;rrez and S\u0026aacute;ez (\u003cspan citationid=\"CR18\" class=\"CitationRef\"\u003e2013\u003c/span\u003e) argue that the more important role of independent directors should be reflected through diligent work rather than independence and objectivity.\u003c/p\u003e\u003cp\u003eIndependent directors\u0026rsquo; attendance can be viewed as a signal of diligence (Liu et al., \u003cspan citationid=\"CR27\" class=\"CitationRef\"\u003e2014\u003c/span\u003e). Foo and Zain (\u003cspan citationid=\"CR12\" class=\"CitationRef\"\u003e2010\u003c/span\u003e) find that more diligent directors in boarding room are associated with higher liquidity in Malaysia. An et al. (\u003cspan citationid=\"CR3\" class=\"CitationRef\"\u003e2024\u003c/span\u003e) find that the higher the proportion of independent directors attending major company meetings in person, the better the corporate performance in China. According to agency theory, as the core body of corporate governance, the audit committee focuses on supervising financial reporting and internal control processes. It is an important platform for discovering and curbing tunneling behaviors, indicated by CSRC regulations in China. Diligent independent directors on the audit committee can participate more deeply in the review of financial information and the supervision of major transactions including tunneling activities through expressing opposed opinion, thereby effectively curbing the possibility of controlling shareholders expropriating company resources. Diligence in the audit committee provides independent directors with more opportunities to identify tunneling activities. Therefore, independent directors\u0026rsquo; diligence as proxied by the attendance in audit committee meetings is expected to result in more effective monitoring of tunneling. This reasoning leads to our first hypothesis as following.\u003c/p\u003e\u003cp\u003e\u003cstrong\u003eH1\u003c/strong\u003e\u003cp\u003eIndependent directors\u0026rsquo; diligence in audit committee meetings is negatively related with tunneling.\u003c/p\u003e\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\"Sec4\" class=\"Section2\"\u003e\u003ch2\u003e2.2. Audit committee\u003c/h2\u003e\u003cp\u003ePrevious literature has emphasized the critical role of audit committees as key monitoring mechanism (Rizzotti \u0026amp; Greco, \u003cspan citationid=\"CR33\" class=\"CitationRef\"\u003e2013\u003c/span\u003e). According to CSRC, audit committees are tasked with overseeing financial reporting and internal control processes, which are essential in curbing tunneling. Damisa et al. (\u003cspan citationid=\"CR9\" class=\"CitationRef\"\u003e2024\u003c/span\u003e) find that audit committee are negatively related to the tunnelling behavior. The frequency of audit committee meetings is a relatively good proxy for effectiveness. Frequent meetings ensure timely communication, foster accountability, and enhance the committee\u0026rsquo;s ability to detect tunneling. Therefore, attending meetings in person is an effective way for them to supervise controlling shareholders (Song et al., \u003cspan citationid=\"CR37\" class=\"CitationRef\"\u003e2021\u003c/span\u003e).\u003c/p\u003e\u003cp\u003eIn context China, the regulatory requirements for independent directors mandate that audit committees must hold at least four meetings per year. This regulation is similar to those in some other Asian countries (Biswas et al., \u003cspan citationid=\"CR5\" class=\"CitationRef\"\u003e2023\u003c/span\u003e), such as Bangladesh and Pakistan. Prior studies indicate that boards that meet frequently are likely to contribute to its effectiveness (Foo \u0026amp; Zain, \u003cspan citationid=\"CR12\" class=\"CitationRef\"\u003e2010\u003c/span\u003e). Building on agency theory, an increase in the frequency of audit committee meetings strengthens the governance effect by enhancing its ability to oversee controlling shareholders. This, in turn, creates a favorable environment for independent directors to exercise diligence and play a more active role in supervising and mitigating tunneling. This leads to our second hypothesis as following.\u003c/p\u003e\u003cp\u003e\u003cstrong\u003eH2\u003c/strong\u003e\u003cp\u003eThe negative effect of independent directors\u0026rsquo; diligence on tunneling are more pronounced in listed firms with more frequent audit committee meetings.\u003c/p\u003e\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\"Sec5\" class=\"Section2\"\u003e\u003ch2\u003e2.3. Geographic location of independent directors\u003c/h2\u003e\u003cp\u003eThe mode of attending meetings inevitably has a significant impact on independent directors\u0026rsquo; attendance. On the one hand, this study limits the mode of participation in audit committee meetings to in-person attendance (rather than proxy attendance). On the other hand, the geographic location of independent directors is another important factor to consider. The farther the directors live from the company, the higher the cost of attending meetings, which affects their willingness to attend. Consequently, geographic location influences the governance effectiveness of independent directors.\u003c/p\u003e\u003cp\u003eAcross China\u0026rsquo;s vast territory, independent directors located far from enterprises often face challenges in accessing critical information and building reputations. These limitations hinder their ability to effectively perform supervisory and advisory roles (Shang et al., \u003cspan citationid=\"CR35\" class=\"CitationRef\"\u003e2023\u003c/span\u003e). Quan and Zhang (\u003cspan citationid=\"CR31\" class=\"CitationRef\"\u003e2021\u003c/span\u003e) argue that when independent directors are located farther from the company headquarters, they attend board meetings less frequently and express dissenting opinions at a lower rate, indicating that the geographic location of independent directors affects their work efficiency. In addition, Su et al. (\u003cspan citationid=\"CR38\" class=\"CitationRef\"\u003e2024\u003c/span\u003e) suggest that shorter geographic location of independent directors can enhance their supervisory effectiveness.\u003c/p\u003e\u003cp\u003eIn this study, shorter geographic location refers to the alignment between the independent director\u0026rsquo;s place of residence and the company\u0026rsquo;s headquarter. According to Short geographic distances reduce travel costs and physical fatigue (Godin \u0026amp; Kok, \u003cspan citationid=\"CR15\" class=\"CitationRef\"\u003e1996\u003c/span\u003e; Rehman et al., \u003cspan citationid=\"CR32\" class=\"CitationRef\"\u003e2023\u003c/span\u003e), which suggests that reduced cognitive and physical strain enhances decision-making efficiency, enabling independent directors to better detect and address tunneling behaviors. Therefore, we propose the following hypothesis.\u003c/p\u003e\u003cp\u003e\u003cstrong\u003eH3\u003c/strong\u003e\u003cp\u003eWhen the independent director\u0026rsquo;s geographic location of residence aligns with the company\u0026rsquo;s headquarter, the negative effect of independent directors\u0026rsquo; diligence on tunneling are more pronounced.\u003c/p\u003e\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\"Sec6\" class=\"Section2\"\u003e\u003ch2\u003e2.4. Financial expertise of independent directors\u003c/h2\u003e\u003cp\u003ePrevious literature shows that independent director expertise has been widely recognized as a crucial governance mechanism in mitigating agency problems. For example, independent directors with legal expertise ensure compliance with regulatory frameworks, reducing corporate misbehavior and tunneling (Dharwadkar et al., \u003cspan citationid=\"CR10\" class=\"CitationRef\"\u003e2021\u003c/span\u003e; Liu \u0026amp; Sun, \u003cspan citationid=\"CR26\" class=\"CitationRef\"\u003e2021\u003c/span\u003e). Financially skilled independent directors improve reporting quality, enhance transparency, and discourage earnings management (Bilal et al., 2023; Malik \u0026amp; Shafie, \u003cspan citationid=\"CR28\" class=\"CitationRef\"\u003e2021\u003c/span\u003e; Mehdi et al., \u003cspan citationid=\"CR29\" class=\"CitationRef\"\u003e2021\u003c/span\u003e). This directly limits the opportunities for tunneling by improving monitoring and reducing information asymmetry.\u003c/p\u003e\u003cp\u003eAccording to resource dependence theory, specialized knowledge allows independent directors to better understand complex financial statements, detect anomalies, and scrutinize transactions that may involve resource expropriation by controlling shareholders. Therefore, independent directors with financial expertise play a crucial role in enhancing corporate governance by effectively identifying and mitigating tunneling behavior. In context of China, the \u003cem\u003eGuideline for Independent Directors of Listed Companies\u003c/em\u003e mandates that the audit committee should be convened by a financial professional among the independent directors. Additionally, the audit committee is responsible for reviewing financial information and monitoring the use of funds by related parties. Therefore, independent directors with financial expertise are better equipped to identify whether the company\u0026rsquo;s financial activities involve tunneling, thereby enhancing diligent oversight and effectively curbing tunneling behavior. Based on the theoretical reasoning, the following hypothesis is proposed.\u003c/p\u003e\u003cp\u003e\u003cstrong\u003eH4\u003c/strong\u003e\u003cp\u003eIndependent director expertise significantly moderates the negative relationship between independent directors\u0026rsquo; diligence and tunneling behavior. Specifically, independent director expertise strengthens the role of diligence in mitigating tunneling.\u003c/p\u003e\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\"Sec7\" class=\"Section2\"\u003e\u003ch2\u003e2.5. The role of internal control\u003c/h2\u003e\u003cp\u003eInternal control systems establish standardized procedures for critical operations, including financial reporting, asset management, and corporate guarantees (Jayanthi, \u003cspan citationid=\"CR20\" class=\"CitationRef\"\u003e2005\u003c/span\u003e). The audit committee, where independent directors play a leading role, relies on these mechanisms to continuously monitor and evaluate the company\u0026rsquo;s compliance with governance practices (Krishnan, \u003cspan citationid=\"CR24\" class=\"CitationRef\"\u003e2005\u003c/span\u003e). A strong internal control system amplifies the negative relationship between independent directors\u0026rsquo; diligence and tunneling. That is, independent directors who diligently perform their roles are more effective at limiting tunneling when internal control systems are sound and well-implemented.\u003c/p\u003e\u003cp\u003e\u003cem\u003eGuideline for Independent Directors of Listed Companies\u003c/em\u003e stipulates that the audit committee should continuously monitor the implementation of guarantees provided by the company, which falls within the scope of internal control. It is evident that a sound internal control system is conducive to the fulfillment of independent directors\u0026rsquo; duties.\u003c/p\u003e\u003cp\u003eFrom an agency theory perspective, a well-functioning internal control system strengthens the negative relationship between independent directors\u0026rsquo; diligence and tunneling. Specifically, effective internal controls reduce information asymmetry (Li et al., \u003cspan citationid=\"CR25\" class=\"CitationRef\"\u003e2022\u003c/span\u003e) and enhance independent directors\u0026rsquo; ability to monitor and question managerial decisions, thereby limiting tunneling and safeguarding shareholder interests.\u003c/p\u003e\u003cp\u003eBased on the theoretical reasoning, we provide the following hypothesis.\u003c/p\u003e\u003cp\u003e\u003cstrong\u003eH5\u003c/strong\u003e\u003cp\u003eInternal control significantly moderates the negative relationship between independent directors\u0026rsquo; diligence and tunneling behavior. Specifically, high-quality internal control strengthens the role of diligence in mitigating tunneling.\u003c/p\u003e\u003c/p\u003e\u003c/div\u003e"},{"header":"3. Research methodology","content":"\u003cp\u003eTo explore the governance role of independent directors\u0026rsquo; diligence in the audit committee, this study introduces a multidimensional fixed-effects model for regression analysis, as it controls for the potential influence of time, industry factors, and individual effects, ensuring more robust findings of this study.\u003c/p\u003e\u003cdiv id=\"Sec9\" class=\"Section2\"\u003e\u003ch2\u003e3.1. Sample selection and data\u003c/h2\u003e\u003cp\u003eWe construct a sample of 3,998 listed companies in China, drawing data from CSMAR (China Management Science Academic Research) database spanning the period from 2009 to 2023. The period span starts at 2009 because that the information of independent directors\u0026rsquo; attendance data was first disclosed in 2009. We begin with a primary sample of 4,040 listed companies in China, which are from A-share market. We then exclude 58 financial companies from the dataset, due to the different accounting regulations of financial industry. Consequently, our final sample consists of 3,998 companies, yielding a total of 34,553 firm-year observations.\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\"Sec10\" class=\"Section2\"\u003e\u003ch2\u003e3.2. Variable definition\u003c/h2\u003e\u003cdiv id=\"Sec11\" class=\"Section3\"\u003e\u003ch2\u003e3.2.1. Dependent variable: tunneling\u003c/h2\u003e\u003cp\u003eAlthough controlling shareholders may employ various tunneling channels to expropriate minority shareholders, Cheung et al. (\u003cspan citationid=\"CR7\" class=\"CitationRef\"\u003e2009\u003c/span\u003e) suggest that it is common for the controlling shareholders in listed companies to extract funds from minority shareholders in the form of related-party loans. Moreover, according to the \u003cem\u003eGuidelines for Independent Directors of Listed Companies\u003c/em\u003e, the audit committee is required to supervise the board of directors in disclosing and taking recovery measures regarding the controlling shareholders\u0026rsquo; appropriation of funds through related-party loans. This regulation strengthens the persuasiveness of using related-party loans as a measure of tunneling in this study. In China, related-party loans are typically recorded as \u0026ldquo;Other Receivables\u0026rdquo; and account for the majority proportion of this term (Gao \u0026amp; Kling, \u003cspan citationid=\"CR13\" class=\"CitationRef\"\u003e2008\u003c/span\u003e). Following Jiang et al. (\u003cspan citationid=\"CR21\" class=\"CitationRef\"\u003e2010\u003c/span\u003e); Zhang et al. (2020), we use Other Receivables (\u003cem\u003eOREC\u003c/em\u003e) as the measurement of tunneling in this study. To ensure that the regression results are not affected by extreme values, this study applies the natural logarithm transformation to \u003cem\u003eOREC\u003c/em\u003e.\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\"Sec12\" class=\"Section3\"\u003e\u003ch2\u003e3.2.2. Independent variable: independent directors\u0026rsquo; diligence\u003c/h2\u003e\u003cp\u003ePrevious literature (Foo \u0026amp; Zain, \u003cspan citationid=\"CR12\" class=\"CitationRef\"\u003e2010\u003c/span\u003e; Kalelkar, \u003cspan citationid=\"CR23\" class=\"CitationRef\"\u003e2016\u003c/span\u003e; Rizzotti \u0026amp; Greco, \u003cspan citationid=\"CR33\" class=\"CitationRef\"\u003e2013\u003c/span\u003e; Yuan et al., \u003cspan citationid=\"CR43\" class=\"CitationRef\"\u003e2020\u003c/span\u003e) argues that independent directors\u0026rsquo; attendance at meetings reflects their commitment to fulfilling responsibilities. Higher attendance indicates active participation in board and a greater focus on overseeing corporate governance. In context of audit committee, independent directors\u0026rsquo; diligence refers to the attendance at audit committee meetings. Following Biswas et al. (\u003cspan citationid=\"CR5\" class=\"CitationRef\"\u003e2023\u003c/span\u003e); Kalelkar (\u003cspan citationid=\"CR23\" class=\"CitationRef\"\u003e2016\u003c/span\u003e); Yuan et al. (\u003cspan citationid=\"CR43\" class=\"CitationRef\"\u003e2020\u003c/span\u003e), we measure independent directors\u0026rsquo; diligence (\u003cem\u003eDilig\u003c/em\u003e) by attendance at audit committee meetings. Given that each audit committee consists of multiple independent directors, we use the average attendance rate of independent directors at audit committee meetings to measure \u003cem\u003eDilig\u003c/em\u003e.\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\"Sec13\" class=\"Section3\"\u003e\u003ch2\u003e3.2.3. Moderating variables: financial expertise and internal control\u003c/h2\u003e\u003cp\u003eWe include financial expertise and internal control as moderating variables in this study. Financial expertise in this study refers to independent directors having experience in finance-related work. We construct a continuous variable (\u003cem\u003eFinExp\u003c/em\u003e) to measure the percentage of independent directors with financial expertise among the audit committee members. Accordingly, we check the resumes of independent directors in audit committees to identify those with financial expertise. The number of financially specialized independent directors is then divided by the total number of audit committee members to calculate the percentage of \u003cem\u003eFinExp\u003c/em\u003e.\u003c/p\u003e\u003cp\u003eIn addition, Zimon et al. (\u003cspan citationid=\"CR47\" class=\"CitationRef\"\u003e2021\u003c/span\u003e) believe that high-quality internal control can enhance the ability to address tunneling. This study expects that the improvement of internal control quality (\u003cem\u003eICQ\u003c/em\u003e) can significantly moderate the mitigating effect of independent directors\u0026rsquo; diligence on tunneling. The CSMAR database provides evaluations of internal control quality for Chinese listed companies. We consider companies without internal control deficiencies to have high-quality internal control. Therefore, we introduce a dummy variable to measure \u003cem\u003eICQ\u003c/em\u003e, assigning a value of 1 when a company has no internal control deficiencies and 0 otherwise.\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\"Sec14\" class=\"Section3\"\u003e\u003ch2\u003e3.2.4. Control variables\u003c/h2\u003e\u003cp\u003eSeveral control variables which are expected to affect the dependent variable are included. Specifically, we include leverage (\u003cem\u003eLev\u003c/em\u003e), net cash flow (\u003cem\u003eCashflow\u003c/em\u003e), growth in revenue (\u003cem\u003eGrowth\u003c/em\u003e), negative net income (\u003cem\u003eLoss\u003c/em\u003e), board size (\u003cem\u003eBoard\u003c/em\u003e), percentage of independent directors among board (\u003cem\u003eIndep\u003c/em\u003e), duality of CEO and chairman (\u003cem\u003eDual\u003c/em\u003e), shareholding of top 10 shareholders (\u003cem\u003eTop10\u003c/em\u003e), state-owned enterprise (\u003cem\u003eSOE\u003c/em\u003e), listing years (\u003cem\u003eListAge\u003c/em\u003e), top 10 auditor (\u003cem\u003eBig10\u003c/em\u003e). Table\u0026nbsp;\u003cspan refid=\"Tab1\" class=\"InternalRef\"\u003e1\u003c/span\u003e shows the summary of variable definitions.\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\"Sec15\" class=\"Section3\"\u003e\u003ch2\u003e3.2.5. Other variables\u003c/h2\u003e\u003cp\u003eTo measure the frequency of audit committee meetings and the geographical location of independent directors influence the impact of independent directors\u0026rsquo; diligence on tunneling, this study defines two binary variables: \u003cem\u003eACmeeting\u003c/em\u003e and \u003cem\u003eLocation\u003c/em\u003e. We first collect data on the annual number of audit committee meetings (\u003cem\u003eACmeetingtimes\u003c/em\u003e) and then evaluate whether the frequency met the CSRC\u0026rsquo;s requirement (a minimum of four meetings per year). If \u003cem\u003eACmeetingtimes\u003c/em\u003e is equal to or exceeds four, \u003cem\u003eACmeeting\u003c/em\u003e is assigned a value of 1; otherwise, it is assigned a value of 0.\u003c/p\u003e\u003cp\u003eFor the geographical location of independent directors, we retrieve data on their residence location from the CSMAR database and matched it with the company\u0026rsquo;s headquarter address (at the city level). If the independent director\u0026rsquo;s residence aligns with the company\u0026rsquo;s headquarter, it indicates that they are located in the same city. Notably, the CSMAR database only reports the geographical locations of independent directors with financial expertise, as their financial background is more critical to audit committee decisions compared to other independent directors. If all financially specialized independent directors reside in the same city as the company\u0026rsquo;s headquarter, \u003cem\u003eLocation\u003c/em\u003e is assigned a value of 1; otherwise, it is assigned a value of 0.\u003c/p\u003e\u003cp\u003e\u003cdiv class=\"gridtable\"\u003e\u003ctable float=\"Yes\" id=\"Tab1\" border=\"1\"\u003e\u003ccaption language=\"En\"\u003e\u003cdiv class=\"CaptionNumber\"\u003eTable 1\u003c/div\u003e\u003cdiv class=\"CaptionContent\"\u003e\u003cp\u003eDefinition of variables\u003c/p\u003e\u003c/div\u003e\u003c/caption\u003e\u003ccolgroup cols=\"3\"\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c1\" colnum=\"1\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c2\" colnum=\"2\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c3\" colnum=\"3\"\u003e\u003c/div\u003e\u003cthead\u003e\u003ctr\u003e\u003cth align=\"left\" colname=\"c1\"\u003e\u003cp\u003eVariable\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c2\"\u003e\u003cp\u003eAbbreviation\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c3\"\u003e\u003cp\u003eDefinition\u003c/p\u003e\u003c/th\u003e\u003c/tr\u003e\u003c/thead\u003e\u003ctbody\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eTunneling\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eOREC\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eThe natural logarithm of other receivables.\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eIndependent directors\u0026rsquo; diligence\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eDilig\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eThe average attendance rate of independent directors at audit committee meetings.\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eFrequency of audit committee meetings\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eACmeeting\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eA binary variable which is assigned a value of 1 if audit committee meetings times are equal to or exceeds four; otherwise, it is assigned a value of 0.\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eGeographical location\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eLocation\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eA binary variable which is assigned a value of 1 if all financially specialized independent directors reside in the same city as the company\u0026rsquo;s headquarter; 0, otherwise.\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eInternal control\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eICQ\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eA dummy variable which equals 1 if a company is reported with internal control weakness; 0 otherwise.\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eFinancial expertise\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eFinExp\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eThe percentage of independent directors with financial expertise among the audit committee members.\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eLeverage\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eLev\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eThe ratio of total liabilities to total assets.\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eNet cash flow\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eCashflow\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eThe annual percentage change in total revenue or total assets.\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eGrowth in revenue\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eGrowth\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eThe annual percentage change in total revenue.\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eNegative net income\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eLoss\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eA dummy variable which equals one if the company experiences a negative net income and zero otherwise.\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eBoard size\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eBoard\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eThe natural logarithm of the number of directors.\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003ePercentage of independent directors\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eIndep\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eThe percentage of independent directors to all directors among board.\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eDuality of CEO and chairman\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eDual\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eA dummy variable that equals one if the CEO and the chairman of a firm are the same person and 0 otherwise.\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eTop 10 shareholders\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eTop 10\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eThe percentage of shares held by the top 10 shareholders\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eState-owned enterprise\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eSOE\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eA dummy variable that equals one if a company is ultimately controlled by the state and 0 otherwise.\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eListing years\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eListAge\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eThe number of years since the company was listed on stock exchange.\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eBig 10 auditors\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eBig 10\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eA dummy variable that equals one if the company is a client of the top 10 (by revenue) accounting firms in China and 0 otherwise.\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003c/tbody\u003e\u003c/colgroup\u003e\u003c/table\u003e\u003c/div\u003e\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv id=\"Sec16\" class=\"Section2\"\u003e\u003ch2\u003e3.3. Model specification\u003c/h2\u003e\u003cp\u003eTo investigate the relation between independent directors\u0026rsquo; diligence and tunneling, we construct the multidimensional fixed-effect regression model.\u003cdiv id=\"Equ1\" class=\"Equation\"\u003e\u003cdiv format=\"TEX\" class=\"mathdisplay\" id=\"FileID_Equ1\" name=\"EquationSource\"\u003e\n$$\\:OREC=\\:{\\beta\\:}_{0}+{\\beta\\:}_{1}\\:Dilig+{\\beta\\:}_{2}Controls+\\sum\\:{\\beta\\:}_{i}Industry+\\sum\\:{\\beta\\:}_{i}Year+\\sum\\:{\\beta\\:}_{i}Firm+\\epsilon\\:$$\u003c/div\u003e\u003cdiv class=\"EquationNumber\"\u003e1\u003c/div\u003e\u003c/div\u003e\u003c/p\u003e\u003cp\u003eIn model (1), the dependent variable is \u003cem\u003eOREC\u003c/em\u003e, while independent variable is \u003cem\u003eDilig\u003c/em\u003e. \u003cem\u003eControls\u003c/em\u003e includes all the control variables in Section \u003cspan refid=\"Sec14\" class=\"InternalRef\"\u003e3.2.4\u003c/span\u003e. Fixed effects at three levels (\u003cem\u003eIndustry, Year, Firm\u003c/em\u003e) have been incorporated into the model. In addition, we also use model (1) to investigate the influence of frequency of audit committee meetings and geographical location of independent directors by subgroup analysis. In the robust check, we adopt a strategy of replacing the dependent variable. Specifically, we use residuals of the regression model (\u003cem\u003eOREC_r\u003c/em\u003e) as substitutes for \u003cem\u003eOREC\u003c/em\u003e, and then perform regressions using model (1).\u003c/p\u003e\u003cp\u003eTo explore the role of internal control in moderating the relationship between independent directors\u0026rsquo; diligence and tunneling, we construct the model (2).\u003cdiv id=\"Equ2\" class=\"Equation\"\u003e\u003cdiv format=\"TEX\" class=\"mathdisplay\" id=\"FileID_Equ2\" name=\"EquationSource\"\u003e\n$$\\:OREC=\\:{\\beta\\:}_{0}+{\\beta\\:}_{1}\\:Dilig+{\\beta\\:}_{2}FinExp+{\\beta\\:}_{3}Dilig\\_FinExp+{\\beta\\:}_{4}Controls+\\sum\\:{\\beta\\:}_{i}Industry+\\sum\\:{\\beta\\:}_{i}Year+\\sum\\:{\\beta\\:}_{i}Firm+\\epsilon\\:$$\u003c/div\u003e\u003cdiv class=\"EquationNumber\"\u003e2\u003c/div\u003e\u003c/div\u003e\u003c/p\u003e\u003cp\u003eIn model (2), \u003cem\u003eFinExp\u003c/em\u003e represents financial expertise of independent directors. We introduce an interaction term, \u003cem\u003eDilig_FinExp\u003c/em\u003e, to examine the moderating effect of \u003cem\u003eFinExp\u003c/em\u003e. The specific definitions of other variables can be found in Table\u0026nbsp;\u003cspan refid=\"Tab1\" class=\"InternalRef\"\u003e1\u003c/span\u003e.\u003c/p\u003e\u003cp\u003eTo explore the role of internal control in moderating the relationship between independent directors\u0026rsquo; diligence and tunneling, we construct the model (3).\u003cdiv id=\"Equ3\" class=\"Equation\"\u003e\u003cdiv format=\"TEX\" class=\"mathdisplay\" id=\"FileID_Equ3\" name=\"EquationSource\"\u003e\n$$\\:OREC=\\:{\\beta\\:}_{0}+{\\beta\\:}_{1}\\:Dilig+{\\beta\\:}_{2}ICQ+{\\beta\\:}_{3}Dilig\\_ICQ+{\\beta\\:}_{4}Controls+\\sum\\:{\\beta\\:}_{i}Industry+\\sum\\:{\\beta\\:}_{i}Year+\\sum\\:{\\beta\\:}_{i}Firm+\\epsilon\\:$$\u003c/div\u003e\u003cdiv class=\"EquationNumber\"\u003e3\u003c/div\u003e\u003c/div\u003e\u003c/p\u003e\u003cp\u003eIn model (3), \u003cem\u003eICQ\u003c/em\u003e represents internal control quality. We use an interaction term, \u003cem\u003eDilig_ICQ\u003c/em\u003e, to examine the moderating effect of \u003cem\u003eICQ\u003c/em\u003e. The specific definitions of other variables can be found in Table\u0026nbsp;\u003cspan refid=\"Tab1\" class=\"InternalRef\"\u003e1\u003c/span\u003e.\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\"Sec17\" class=\"Section2\"\u003e\u003ch2\u003e3.4. Endogeneity issues\u003c/h2\u003e\u003cp\u003ePotential endogeneity issues may raise doubts about the findings of this study. To address this, we employ the 2SLS-instrumental variable approach and the system GMM (Generalized Method of Moments) model.\u003c/p\u003e\u003c/div\u003e"},{"header":"4. Results and Discussion","content":"\u003cp\u003e\u003cdiv class=\"gridtable\"\u003e\u003ctable float=\"Yes\" id=\"Tab2\" border=\"1\"\u003e\u003ccaption language=\"En\"\u003e\u003cdiv class=\"CaptionNumber\"\u003eTable 2\u003c/div\u003e\u003cdiv class=\"CaptionContent\"\u003e\u003cp\u003eDescriptive analysis\u003c/p\u003e\u003c/div\u003e\u003c/caption\u003e\u003ccolgroup cols=\"8\"\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c1\" colnum=\"1\"\u003e\u003c/div\u003e\u003cdiv align=\"char\" char=\".\" class=\"colspec\" colname=\"c2\" colnum=\"2\"\u003e\u003c/div\u003e\u003cdiv align=\"char\" char=\".\" class=\"colspec\" colname=\"c3\" colnum=\"3\"\u003e\u003c/div\u003e\u003cdiv align=\"char\" char=\".\" class=\"colspec\" colname=\"c4\" colnum=\"4\"\u003e\u003c/div\u003e\u003cdiv align=\"char\" char=\".\" class=\"colspec\" colname=\"c5\" colnum=\"5\"\u003e\u003c/div\u003e\u003cdiv align=\"char\" char=\".\" class=\"colspec\" colname=\"c6\" colnum=\"6\"\u003e\u003c/div\u003e\u003cdiv align=\"char\" char=\".\" class=\"colspec\" colname=\"c7\" colnum=\"7\"\u003e\u003c/div\u003e\u003cdiv align=\"char\" char=\".\" class=\"colspec\" colname=\"c8\" colnum=\"8\"\u003e\u003c/div\u003e\u003cthead\u003e\u003ctr\u003e\u003cth align=\"left\" colname=\"c1\"\u003e\u003cp\u003eVariables\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c2\"\u003e\u003cp\u003eObs\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c3\"\u003e\u003cp\u003eMean\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c4\"\u003e\u003cp\u003eStd.Dev.\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c5\"\u003e\u003cp\u003eMin\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c6\"\u003e\u003cp\u003eMax\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c7\"\u003e\u003cp\u003ep1\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c8\"\u003e\u003cp\u003ep99\u003c/p\u003e\u003c/th\u003e\u003c/tr\u003e\u003c/thead\u003e\u003ctbody\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eOREC\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e34,553\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e17.034\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e2.287\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e26.332\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e11.75\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e22.309\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eDilig\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e34,553\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e0.872\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e0.121\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e0.350\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e0.600\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eACmeetingtimes\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e34,006\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e4.854\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e1.760\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e22.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e10.000\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eACmeeting\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e34,006\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e0.689\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e0.463\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eLocation\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e33,958\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e0.368\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e0.482\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eFinExp\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e33,391\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e0.537\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e0.230\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e0.100\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e0.289\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e0.827\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eICQ\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e30,152\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e0.988\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e0.107\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eLev\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e34,553\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e0.464\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e1.376\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e-0.195\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e178.345\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e0.052\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e0.980\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eCashflow\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e34,553\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e0.043\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e0.126\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e-11.056\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e2.457\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e-0.196\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e0.249\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eGrowth\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e34,553\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e0.001\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e1.277\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e-0.008\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e186.876\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e-0.007\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e-0.002\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eLoss\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e34,553\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e0.116\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e0.320\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eBoard\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e34,553\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e2.129\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e0.204\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e0.693\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e3.045\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e1.609\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e2.708\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eIndep\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e34,553\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e0.375\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e0.056\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e0.333\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e0.571\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eDual\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e34,553\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e0.279\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e0.449\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eTop10\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e34,553\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e0.583\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e0.158\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e0.013\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e1.012\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e0.223\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e0.906\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eSOE\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e34,553\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e0.355\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e0.478\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eListAge\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e34,553\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e2.063\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e0.941\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e3.466\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e3.332\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eBig10\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c2\"\u003e\u003cp\u003e34,553\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c3\"\u003e\u003cp\u003e0.475\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c4\"\u003e\u003cp\u003e0.499\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c5\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c6\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c7\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"char\" char=\".\" colname=\"c8\"\u003e\u003cp\u003e1.000\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003c/tbody\u003e\u003c/colgroup\u003e\u003c/table\u003e\u003c/div\u003e\u003c/p\u003e\u003cp\u003eThis table presents summary statistics of the sample and variables. Variables are defined in Table\u0026nbsp;\u003cspan refid=\"Tab1\" class=\"InternalRef\"\u003e1\u003c/span\u003e.\u003c/p\u003e\u003cdiv id=\"Sec19\" class=\"Section2\"\u003e\u003ch2\u003e4.1. Descriptive results\u003c/h2\u003e\u003cp\u003eTable\u0026nbsp;\u003cspan refid=\"Tab2\" class=\"InternalRef\"\u003e2\u003c/span\u003e reports the descriptive statistics of variables in this study. The results for \u003cem\u003eDilig\u003c/em\u003e (with an average value of 0.872) indicate that the vast majority of independent directors met the attendance requirements. Between 2005 and 2009, the Shenzhen Stock Exchange and the Shanghai Stock Exchange each issued regulatory guidelines for independent directors, imposing strict attendance requirements. These measures may have encouraged independent directors to enhance their diligence. Based on the combined statistical results of \u003cem\u003eACmeetingtimes\u003c/em\u003e and \u003cem\u003eACmeeting\u003c/em\u003e, the vast majority of listed companies meet the regulatory requirements for the frequency of audit committee meetings. The mean value of \u003cem\u003eLocation\u003c/em\u003e is 0.368, indicating that 36.8% of independent directors in the sample reside in the same city as the company\u0026rsquo;s headquarter. The results for \u003cem\u003eFinExp\u003c/em\u003e (mean value\u0026thinsp;=\u0026thinsp;0.537) imply that over 50% of audit committee members have financial expertise. Although the CSRC does not mandate a threshold for the proportion of financially experienced independent directors, Gilani et al. (\u003cspan citationid=\"CR14\" class=\"CitationRef\"\u003e2021\u003c/span\u003e) and Chen et al. (\u003cspan citationid=\"CR6\" class=\"CitationRef\"\u003e2020\u003c/span\u003e) argue that directors with financial expertise contribute to improved corporate governance and performance. \u003cem\u003eICQ\u003c/em\u003e reports a mean value of 0.988, suggesting that the internal control quality of most Chinese listed companies is relatively high, providing a favorable internal governance environment to mitigate tunneling.\u003c/p\u003e\u003cp\u003eThe correlation matrix of variables indicates no evidence of severe multicollinearity among the variables (see Appendix 1). Additionally, based on the results of the Variance Inflation Factor (VIF), where the VIF value for each variable is below 2 (see Appendix 2), multicollinearity is unlikely to pose any issues for our study.\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\"Sec20\" class=\"Section2\"\u003e\u003ch2\u003e4.2. Baseline Regression\u003c/h2\u003e\u003cp\u003eTable\u0026nbsp;\u003cspan refid=\"Tab3\" class=\"InternalRef\"\u003e3\u003c/span\u003e reports the baseline regression results examining the relationship between independent directors\u0026rsquo; diligence and tunneling. Column (1) provides the results of regression within overall sample. The result shows that \u003cem\u003eDilig\u003c/em\u003e is negatively related with \u003cem\u003eOREC\u003c/em\u003e within overall sample, suggesting that greater diligence of independent directors in audit committee is associated with reduced tunneling activities. This result is consistent with our hypothesis (\u003cb\u003eH1\u003c/b\u003e) and Liu et al. (\u003cspan citationid=\"CR27\" class=\"CitationRef\"\u003e2014\u003c/span\u003e), which indicate that increasing diligence of independent directors is associated with reduced tunneling. Column (2) reports a significant negative correlation between independent directors\u0026rsquo; diligence and\u003c/p\u003e\u003cp\u003e\u003cdiv class=\"gridtable\"\u003e\u003ctable float=\"Yes\" id=\"Tab3\" border=\"1\"\u003e\u003ccaption language=\"En\"\u003e\u003cdiv class=\"CaptionNumber\"\u003eTable 3\u003c/div\u003e\u003cdiv class=\"CaptionContent\"\u003e\u003cp\u003eBaseline regression\u003c/p\u003e\u003c/div\u003e\u003c/caption\u003e\u003ccolgroup cols=\"6\"\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c1\" colnum=\"1\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c2\" colnum=\"2\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c3\" colnum=\"3\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c4\" colnum=\"4\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c5\" colnum=\"5\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c6\" colnum=\"6\"\u003e\u003c/div\u003e\u003cthead\u003e\u003ctr\u003e\u003cth align=\"left\" colname=\"c1\" morerows=\"1\" rowspan=\"2\"\u003e\u003cp\u003eVariables\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(1)\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(2)\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(3)\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c5\"\u003e\u003cp\u003e(4)\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c6\"\u003e\u003cp\u003e(5)\u003c/p\u003e\u003c/th\u003e\u003c/tr\u003e\u003ctr\u003e\u003cth align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eOREC\u003c/em\u003e\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c3\"\u003e\u003cp\u003e\u003cem\u003eOREC\u003c/em\u003e\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c4\"\u003e\u003cp\u003e\u003cem\u003eOREC\u003c/em\u003e\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c5\"\u003e\u003cp\u003e\u003cem\u003eOREC\u003c/em\u003e\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c6\"\u003e\u003cp\u003e\u003cem\u003eOREC\u003c/em\u003e\u003c/p\u003e\u003c/th\u003e\u003c/tr\u003e\u003c/thead\u003e\u003ctbody\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eDilig\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-0.841**\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e-0.824**\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e-0.291\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e-1.302*\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e-0.709*\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(-2.465)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(-2.044)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(-0.093)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e(-1.862)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e(-1.761)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eLev\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-0.009\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e-0.013\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" 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colname=\"c2\"\u003e\u003cp\u003e0.004\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.025\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e-0.081\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e-0.038\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e0.017\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(0.131)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(0.780)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(-0.540)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e(-0.789)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e(0.506)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eTop10\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.992***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.049***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e0.609\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e0.663**\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e1.040***\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(6.112)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(6.874)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(0.477)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e(2.377)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e(5.157)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eSOE\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.147\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.190*\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e0.092\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e0.190\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e0.121\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(1.439)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(1.788)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(0.504)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e(1.289)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e(0.936)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eListAge\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.713***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.698***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e0.828***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e0.630***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e0.766***\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(12.747)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(12.761)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(5.810)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e(8.785)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e(10.202)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eBig10\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.011\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.002\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e0.009\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e0.037\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e0.002\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(0.372)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(0.067)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(0.112)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e(0.887)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e(0.052)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eIndustry effect\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eYear effect\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eFirm effect\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eObservations\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e34,857\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e32,163\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e1,843\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e13,324\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e20,634\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eR-squared\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.802\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.804\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e0.874\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e0.830\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e0.815\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003c/tbody\u003e\u003c/colgroup\u003e\u003c/table\u003e\u003c/div\u003e\u003c/p\u003e\u003cp\u003eThis table presents the baseline regression of multidimensional fixed-effects model. Column (1) reports the result of regression within overall sample. Columns (2)\u0026ndash;(3) report the results of group testing using \u003cem\u003eACmeeting\u003c/em\u003e, while the Columns (4)\u0026ndash;(5) present the results of group testing using \u003cem\u003eLocation\u003c/em\u003e. Robust t-statistics in parentheses. *** p\u0026thinsp;\u0026lt;\u0026thinsp;0.01, ** p\u0026thinsp;\u0026lt;\u0026thinsp;0.05, * p\u0026thinsp;\u0026lt;\u0026thinsp;0.1. \u003cem\u003eOREC\u003c/em\u003e is the dependent variable in all columns.\u003c/p\u003e\u003cp\u003etunneling in the sample with a higher frequency of audit committee meetings. However, this relationship is not significant in Column (3) (the sample with a lower frequency of audit committee meetings). This result is consistent with our hypothesis (\u003cb\u003eH2\u003c/b\u003e). Columns (4) and (5) present the regression results for cases where the geographic location of independent directors aligns with and differs from the company\u0026rsquo;s headquarters, respectively. While the regression results consistently support the role of independent directors\u0026rsquo; diligence in mitigating tunneling, the results in Column (4) show a stronger effect than Column (5). This finding aligns with our hypothesis (\u003cb\u003eH3\u003c/b\u003e), suggesting that independent directors\u0026rsquo; governance role in mitigating tunneling is more pronounced when their geographic location matches that of the company\u0026rsquo;s headquarter.\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\"Sec21\" class=\"Section2\"\u003e\u003ch2\u003e4.3. Robust tests\u003c/h2\u003e\u003cp\u003e\u003cdiv class=\"gridtable\"\u003e\u003ctable float=\"Yes\" id=\"Tab4\" border=\"1\"\u003e\u003ccaption language=\"En\"\u003e\u003cdiv class=\"CaptionNumber\"\u003eTable 4\u003c/div\u003e\u003cdiv class=\"CaptionContent\"\u003e\u003cp\u003eAlternative measurement of \u003cem\u003eOREC\u003c/em\u003e by residuals value\u003c/p\u003e\u003c/div\u003e\u003c/caption\u003e\u003ccolgroup cols=\"6\"\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c1\" colnum=\"1\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c2\" colnum=\"2\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c3\" colnum=\"3\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c4\" colnum=\"4\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c5\" colnum=\"5\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c6\" colnum=\"6\"\u003e\u003c/div\u003e\u003cthead\u003e\u003ctr\u003e\u003cth align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/th\u003e\u003cth align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(1)\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(2)\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(3)\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c5\"\u003e\u003cp\u003e(4)\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c6\"\u003e\u003cp\u003e(5)\u003c/p\u003e\u003c/th\u003e\u003c/tr\u003e\u003c/thead\u003e\u003ctbody\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eVariables\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eOREC_r\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e\u003cem\u003eOREC_r\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e\u003cem\u003eOREC_r\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e\u003cem\u003eOREC_r\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e\u003cem\u003eOREC_r\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eDilig\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-0.809**\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e-0.797*\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e-0.310\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e-1.271*\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e-0.696*\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(-2.366)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(-1.971)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(-0.098)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e(-1.808)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e(-1.721)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eControls\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003eIncluded\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eIncluded\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003eIncluded\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003eIncluded\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003eIncluded\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eIndustry effect\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eYear effect\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eFirm effect\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eObservations\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e34,553\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e31,879\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e1,828\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e13,214\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e20,457\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eR-squared\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.719\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.726\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e0.808\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c5\"\u003e\u003cp\u003e0.779\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c6\"\u003e\u003cp\u003e0.734\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003c/tbody\u003e\u003c/colgroup\u003e\u003c/table\u003e\u003c/div\u003e\u003c/p\u003e\u003cp\u003eIn this table, Column (1) reports the result of regression within overall sample. Columns (2)\u0026ndash;(3) report the results of group testing using \u003cem\u003eACmeeting\u003c/em\u003e, while the Columns (4)\u0026ndash;(5) present the results of group testing using \u003cem\u003eLocation\u003c/em\u003e. Robust t-statistics in parentheses. *** p\u0026thinsp;\u0026lt;\u0026thinsp;0.01, ** p\u0026thinsp;\u0026lt;\u0026thinsp;0.05, * p\u0026thinsp;\u0026lt;\u0026thinsp;0.1. \u003cem\u003eOREC_r\u003c/em\u003e is the dependent variable in all columns.\u003c/p\u003e\u003cp\u003eTable\u0026nbsp;\u003cspan refid=\"Tab4\" class=\"InternalRef\"\u003e4\u003c/span\u003e provides the results of regression analyses using an alternative measurement of \u003cem\u003eOREC\u003c/em\u003e, denoted as \u003cem\u003eOREC_r\u003c/em\u003e, which represents the residual values obtained from model (4). Following previous studies (Agarwal \u0026amp; Chaudhry, \u003cspan citationid=\"CR1\" class=\"CitationRef\"\u003e2022\u003c/span\u003e; Wang \u0026amp; Xiao, \u003cspan citationid=\"CR41\" class=\"CitationRef\"\u003e2011\u003c/span\u003e), this approach isolates the portion of \u003cem\u003eOREC\u003c/em\u003e that cannot be explained by observed factors, allowing for a more precise examination of the relationship between independent variables and deviations in tunneling.\u003cdiv id=\"Equ4\" class=\"Equation\"\u003e\u003cdiv format=\"TEX\" class=\"mathdisplay\" id=\"FileID_Equ4\" name=\"EquationSource\"\u003e\n$$\\:OREC=\\:{\\beta\\:}_{0}+{\\beta\\:}_{1}Controls+\\sum\\:{\\beta\\:}_{i}Industry+\\sum\\:{\\beta\\:}_{i}Year+\\sum\\:{\\beta\\:}_{i}Firm+\\epsilon\\:$$\u003c/div\u003e\u003cdiv class=\"EquationNumber\"\u003e4\u003c/div\u003e\u003c/div\u003e\u003c/p\u003e\u003cp\u003eIn Table\u0026nbsp;\u003cspan refid=\"Tab4\" class=\"InternalRef\"\u003e4\u003c/span\u003e, \u003cem\u003eDilig\u003c/em\u003e exhibits a consistently negative coefficient in overall sample, indicating that greater diligence by independent directors is associated with decreased tunneling. Column (2) (higher meeting frequency) shows a significant negative relationship between \u003cem\u003eDilig\u003c/em\u003e and tunneling, while Column (3) (lower meeting frequency) shows an insignificant coefficient for \u003cem\u003eDilig\u003c/em\u003e. Column (4) (independent directors located the same city with headquarter) shows a significant negative relationship between \u003cem\u003eDilig\u003c/em\u003e and tunneling, while Column (5) (directors located away from headquarters) shows a weaker negative relationship. In summary, the findings in Table\u0026nbsp;\u003cspan refid=\"Tab4\" class=\"InternalRef\"\u003e4\u003c/span\u003e are consistent with baseline regression, reinforcing the conclusion that independent directors\u0026rsquo; diligence plays a significant role in mitigating tunneling.\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\"Sec22\" class=\"Section2\"\u003e\u003ch2\u003e4.4. Endogeneity tests\u003c/h2\u003e\u003cp\u003e\u003cdiv class=\"gridtable\"\u003e\u003ctable float=\"Yes\" id=\"Tab5\" border=\"1\"\u003e\u003ccaption language=\"En\"\u003e\u003cdiv class=\"CaptionNumber\"\u003eTable 5\u003c/div\u003e\u003cdiv class=\"CaptionContent\"\u003e\u003cp\u003eResults of 2SLS-IV and GMM model\u003c/p\u003e\u003c/div\u003e\u003c/caption\u003e\u003ccolgroup cols=\"4\"\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c1\" colnum=\"1\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c2\" colnum=\"2\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c3\" colnum=\"3\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c4\" colnum=\"4\"\u003e\u003c/div\u003e\u003cthead\u003e\u003ctr\u003e\u003cth align=\"left\" colname=\"c1\" morerows=\"1\" rowspan=\"2\"\u003e\u003cp\u003eVariables\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colspan=\"2\" nameend=\"c3\" namest=\"c2\"\u003e\u003cp\u003e2SLS\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c4\" morerows=\"1\" rowspan=\"2\"\u003e\u003cp\u003eGMM\u003c/p\u003e\u003c/th\u003e\u003c/tr\u003e\u003ctr\u003e\u003cth align=\"left\" colname=\"c2\"\u003e\u003cp\u003eFirst stage\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c3\"\u003e\u003cp\u003eSecond stage\u003c/p\u003e\u003c/th\u003e\u003c/tr\u003e\u003c/thead\u003e\u003ctbody\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eHighway\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.071***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(25.230)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eL.OREC\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e0.516***\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(16.216)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eDilig\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e-2.447***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e-25.769**\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(-2.712)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(-2.333)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eLev\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-0.001\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.068\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e-0.136\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(-1.050)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(1.032)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(-0.841)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eCashflow\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e-0.848**\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e-5.456***\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(0.470)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(-2.129)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(-4.425)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eGrowth\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-0.001\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e-0.001\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e0.951\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(-1.490)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(-0.421)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(0.514)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eLoss\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.025\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e1.256***\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(-0.340)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(0.637)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(3.950)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eBoard\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.001\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.676***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e2.110\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(1.200)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(26.546)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(1.042)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eIndep\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.005**\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e4.294***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e2.719\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(2.59)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(18.614)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(0.426)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eDual\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e-0.138***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e-1.658**\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(-0.61)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(-6.007)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(-2.277)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eTop10\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-0.001\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.775***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e6.002***\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(-0.71)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(22.856)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(6.801)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eSOE\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.206***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e1.247**\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(-1.51)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(7.981)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(2.240)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eListAge\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.806***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e0.721***\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(-0.12)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(52.708)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(7.125)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eBig10\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-0.000\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.237***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e0.153**\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(-0.44)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(10.870)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(2.430)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eConstant\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.926***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e11.280***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e23.666**\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(246.20)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(12.112)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e(2.332)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eObservations\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e35,046\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e35,046\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e31,218\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eR-squared\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.398\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.185\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eMES\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e230.067\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eCritical value\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e16.38\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eAR (1)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e0.286\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eAR (2)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c4\"\u003e\u003cp\u003e0.815\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003c/tbody\u003e\u003c/colgroup\u003e\u003c/table\u003e\u003c/div\u003e\u003c/p\u003e\u003cp\u003eThis table presents results of 2SLS-IV (two-step stage Instrumental Variable method) and system GMM (Generalized Method of Moments) model. MES represents the minimum eigenvalue statistic in the first stage of 2SLS-IV, while Critical value means critical value for instrumental variable validity test. AR (1) and AR (2) report the p-value of first-order and second-order serial correlation, respectively. Robust z-statistics in parentheses. *** p\u0026thinsp;\u0026lt;\u0026thinsp;0.01, ** p\u0026thinsp;\u0026lt;\u0026thinsp;0.05, * p\u0026thinsp;\u0026lt;\u0026thinsp;0.1.\u003c/p\u003e\u003cdiv id=\"Sec23\" class=\"Section3\"\u003e\u003ch2\u003e4.4.1. 2SLS-IV approach\u003c/h2\u003e\u003cp\u003ePotential endogeneity problems (such as reverse causality or omitted variables) may cause our baseline results to be unconvincing. For instance, firms with severe tunneling issues intentionally hire more diligent directors. In addition, omitted variable bias could influence both tunneling and board composition. To address these concerns, we include the 2SLS-IV approach. Specifically, we use \u003cem\u003eHighway\u003c/em\u003e (whether the independent director\u0026rsquo;s city of residence has high-speed rail) as an instrumental variable for \u003cem\u003eDilig\u003c/em\u003e (independent directors\u0026rsquo; diligence). This approach is based on the following reasons. On one hand, the availability of high-speed rail in an independent director\u0026rsquo;s city of residence significantly impacts their ability to travel efficiently to meetings. High-speed rail reduces travel time and fatigue, potentially increasing their attendance rate and engagement in governance activities (Shang \u0026amp; Yuan, \u003cspan citationid=\"CR34\" class=\"CitationRef\"\u003e2023\u003c/span\u003e). On the other hand, the presence of high-speed rail in a director\u0026rsquo;s city is likely to be exogenous to firm-specific factors. Since whether one city constructs high-speed rail is determined by regional infrastructure policies and unrelated to the governance of individual firms, the instrument variable (\u003cem\u003eHighway\u003c/em\u003e) does not directly influence tunneling except through its impact on \u003cem\u003eDilig\u003c/em\u003e. Table\u0026nbsp;\u003cspan refid=\"Tab5\" class=\"InternalRef\"\u003e5\u003c/span\u003e reports the results of 2SLS-IV approach. For the first stage, the coefficient of \u003cem\u003eHighway\u003c/em\u003e is positive and significant, which indicates \u003cem\u003eHighway\u003c/em\u003e is positively related with \u003cem\u003eDilig\u003c/em\u003e. For the second stage, the coefficient of \u003cem\u003eDilig\u003c/em\u003e is negative and statistically significant. The minimum eigenvalue statistic (MES) is 230.067, which is significantly higher than the Critical value of 16.38. Therefore, \u003cem\u003eHighway\u003c/em\u003e is a strong instrumental variable, providing robust support for the negative association between independent directors\u0026rsquo; diligence and tunneling.\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\"Sec24\" class=\"Section3\"\u003e\u003ch2\u003e4.4.2. GMM model\u003c/h2\u003e\u003cp\u003eTunneling behavior can be continuous and persistent (Shi et al., 2024), indicating potential serial correlation. To address this issue, we employ a system GMM model. Specifically, we include the lagged dependent variable, \u003cem\u003eL.OREC\u003c/em\u003e, to tackle the endogeneity problem caused by serial correlation. Table\u0026nbsp;\u003cspan refid=\"Tab5\" class=\"InternalRef\"\u003e5\u003c/span\u003e provides the result of GMM model test. In Table\u0026nbsp;\u003cspan refid=\"Tab5\" class=\"InternalRef\"\u003e5\u003c/span\u003e, the coefficient of \u003cem\u003eL.OREC\u003c/em\u003e is positive and significant. This finding indicates that firms which engaged in tunneling in the past, are more likely to continue such practices in subsequent periods. The coefficient for \u003cem\u003eDilig\u003c/em\u003e is negative and significant, indicating that diligence negatively influences tunneling, which is consistent with baseline regression. In addition, both AR (1) and AR (2) are not significant in p-value, which suggests there is no serial correlation.\u003c/p\u003e\u003c/div\u003e\u003c/div\u003e\u003cdiv id=\"Sec25\" class=\"Section2\"\u003e\u003ch2\u003e4.5. The moderating role of financial expertise and internal control\u003c/h2\u003e\u003cp\u003e\u003cdiv class=\"gridtable\"\u003e\u003ctable float=\"Yes\" id=\"Tab6\" border=\"1\"\u003e\u003ccaption language=\"En\"\u003e\u003cdiv class=\"CaptionNumber\"\u003eTable 6\u003c/div\u003e\u003cdiv class=\"CaptionContent\"\u003e\u003cp\u003eThe moderating role of financial expertise and internal control quality\u003c/p\u003e\u003c/div\u003e\u003c/caption\u003e\u003ccolgroup cols=\"3\"\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c1\" colnum=\"1\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c2\" colnum=\"2\"\u003e\u003c/div\u003e\u003cdiv align=\"left\" class=\"colspec\" colname=\"c3\" colnum=\"3\"\u003e\u003c/div\u003e\u003cthead\u003e\u003ctr\u003e\u003cth align=\"left\" colname=\"c1\" morerows=\"1\" rowspan=\"2\"\u003e\u003cp\u003eVariables\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(1)\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(2)\u003c/p\u003e\u003c/th\u003e\u003c/tr\u003e\u003ctr\u003e\u003cth align=\"left\" colname=\"c2\"\u003e\u003cp\u003e\u003cem\u003eOREC\u003c/em\u003e\u003c/p\u003e\u003c/th\u003e\u003cth align=\"left\" colname=\"c3\"\u003e\u003cp\u003e\u003cem\u003eOREC\u003c/em\u003e\u003c/p\u003e\u003c/th\u003e\u003c/tr\u003e\u003c/thead\u003e\u003ctbody\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eDilig\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-1.488***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e-0.823**\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(-3.523)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(-2.401)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eICQ\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.001\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(0.043)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eDilig_ICQ\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e-0.030***\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(-3.875)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eFinExp\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-0.494*\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(-1.798)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eDilig_Fin\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-0.201**\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(1.997)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eLev\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-0.008\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e-0.008\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(-0.622)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(-0.537)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eCashflow\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-0.106\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e-0.128\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(-0.760)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(-0.868)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eGrowth\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.005\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e-0.053*\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(1.591)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(-1.800)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eLoss\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.150***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.146***\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(4.782)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(4.732)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eBoard\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.820***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.561***\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(4.407)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(4.669)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eIndep\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.694**\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.757***\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(2.553)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(2.776)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eDual\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e-0.006\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.017\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(-0.232)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(0.687)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eTop10\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.995***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e1.016***\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(6.099)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(5.520)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eSOE\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.106\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e-0.001\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(1.093)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(-0.011)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eListAge\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.729***\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.837***\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(11.978)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(12.647)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003e\u003cem\u003eBig10\u003c/em\u003e\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.004\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.005\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e(0.151)\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e(0.197)\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eIndustry effect\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eYear effect\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eFirm effect\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003eYes\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eObservations\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e33,391\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e30,152\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003ctr\u003e\u003ctd align=\"left\" colname=\"c1\"\u003e\u003cp\u003eR-squared\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c2\"\u003e\u003cp\u003e0.763\u003c/p\u003e\u003c/td\u003e\u003ctd align=\"left\" colname=\"c3\"\u003e\u003cp\u003e0.778\u003c/p\u003e\u003c/td\u003e\u003c/tr\u003e\u003c/tbody\u003e\u003c/colgroup\u003e\u003c/table\u003e\u003c/div\u003e\u003c/p\u003e\u003cp\u003e\u003cem\u003eFinExp\u003c/em\u003e means financial expertise in this table. \u003cem\u003eICQ\u003c/em\u003e means internal control quality. Variables are defined in Table\u0026nbsp;\u003cspan refid=\"Tab1\" class=\"InternalRef\"\u003e1\u003c/span\u003e. \u003cem\u003eDilig_Fin\u003c/em\u003e is the interaction term of \u003cem\u003eDilig\u003c/em\u003e and \u003cem\u003eFinExp\u003c/em\u003e. \u003cem\u003eDilig_ICQ\u003c/em\u003e is the interaction term of \u003cem\u003eDilig\u003c/em\u003e and \u003cem\u003eICQ\u003c/em\u003e. Robust t-statistics in parentheses. *** p\u0026thinsp;\u0026lt;\u0026thinsp;0.01, ** p\u0026thinsp;\u0026lt;\u0026thinsp;0.05, * p\u0026thinsp;\u0026lt;\u0026thinsp;0.1. \u003cem\u003eOREC\u003c/em\u003e is the dependent variable in all columns.\u003c/p\u003e\u003cp\u003eTable\u0026nbsp;\u003cspan refid=\"Tab6\" class=\"InternalRef\"\u003e6\u003c/span\u003e examines the moderating effects of financial expertise (\u003cem\u003eFinExp\u003c/em\u003e) and internal control quality (\u003cem\u003eICQ\u003c/em\u003e) on the relationship between independent directors\u0026rsquo; diligence (\u003cem\u003eDilig\u003c/em\u003e) and tunneling (\u003cem\u003eOREC\u003c/em\u003e). In both columns, \u003cem\u003eDilig\u003c/em\u003e is negatively and significantly associated with \u003cem\u003eOREC\u003c/em\u003e, confirming that increased diligence by independent directors reduces tunneling. Financial expertise has a negative and significant effect on \u003cem\u003eOREC\u003c/em\u003e, suggesting that independent directors with financial expertise are better equipped to reduce tunneling. The interaction term \u003cem\u003eDilig\u003c/em\u003e_\u003cem\u003eFin\u003c/em\u003e is negative and significant, indicating that financial expertise strengthens the negative relationship between \u003cem\u003eDilig\u003c/em\u003e and \u003cem\u003eOREC.\u003c/em\u003e Financial experts may complement the efforts of diligent independent directors by providing more financial insights and guidance, leading to more effective monitoring of tunneling activities.\u003c/p\u003e\u003c/div\u003e"},{"header":"5. Conclusion","content":"\u003cp\u003eThis study investigates the impact of independent directors\u0026rsquo; diligence within the audit committee on controlling shareholders\u0026rsquo; tunneling, focusing on how this governance effect is influenced by the governance environment. Specifically, it explores the varying effects from two perspectives: the frequency of audit committee meetings and the geographical location of independent directors. Furthermore, the study explores the moderating roles of independent directors\u0026rsquo; financial expertise and internal control.\u003c/p\u003e\u003cp\u003eWe find that in companies where audit committees meet more frequently and where independent directors reside in the same location as the company\u0026rsquo;s headquarter, the mitigating effect of independent directors\u0026rsquo; diligence on tunneling is more pronounced. Independent directors\u0026rsquo; financial expertise and the quality of internal controls significantly enhance this mitigating effect.\u003c/p\u003e\u003cp\u003eDifferent from prior literature, which use independent directors\u0026rsquo; attendance at board meetings as a proxy for diligence, this study shifts the focus to the audit committee, recognizing it as the primary platform for independent directors to address tunneling issues in China. Moreover, this study expands the understanding of the audit committee\u0026rsquo;s role, demonstrating its governance effect on reducing controlling shareholders\u0026rsquo; tunneling. Besides, it highlights that convenient geographical location enables independent directors to perform governance duties more effectively. Additionally, the study reveals the moderating role of independent directors\u0026rsquo; expertise and internal control in reducing tunneling behavior.\u003c/p\u003e\u003cp\u003eThis study makes several contributions to the present literature. First, it addresses the limitations in prior measurements of independent directors\u0026rsquo; diligence by focusing on their performance within the audit committee. The study extends agency theory by highlighting the role of independent directors\u0026rsquo; diligence within audit committees as a mechanism to mitigate controlling shareholders\u0026rsquo; tunneling. Second, it provides the first empirical evidence that geographical convenience enhances independent directors\u0026rsquo; ability to mitigate tunneling, contributing to the broader understanding of behavioral factors in corporate governance. Third, this study contributes to resource dependence theory by demonstrating that independent directors\u0026rsquo; financial expertise act as critical resources that enhance governance effectiveness. The interaction between these resources highlights the complementary roles of expertise in strengthening corporate oversight and reducing tunneling. Finally, this study provides a deeper understanding of how internal and external governance mechanisms can work together to align the interests of controlling shareholders and other stakeholders.\u003c/p\u003e\u003cp\u003eBased on the findings, this study offers the following policy recommendations for enhancing the regulatory effectiveness of independent directors in China. First, policies should emphasize the audit committee\u0026rsquo;s critical function in governing tunneling behavior, promoting efficient meeting practices. Furthermore, selection processes should prioritize candidates with financial expertise and consider geographical proximity to ensure effective governance. In addition, policymakers should encourage listed companies to develop robust internal control systems to complement the governance role of independent directors.\u003c/p\u003e"},{"header":"Declarations","content":"\u003cp\u003e\u003ch2\u003eCompeting interests\u003c/h2\u003e\u003cp\u003eThe authors report there are no competing interests to declare.\u003c/p\u003e\u003c/p\u003e\u003ch2\u003eFunding\u003c/h2\u003e\u003cp\u003eThis research received no specific grant from any funding agency in the public,\u003c/p\u003e\u003cp\u003ecommercial, or not-for-profit sectors.\u003c/p\u003e\u003ch2\u003eAuthor Contribution\u003c/h2\u003e\u003cp\u003eJ.Z. conceived the idea, designed the study, performed all experiments and analyses, interpreted the results, wrote the manuscript, prepared the tables, and approved the final version for submission.\u003c/p\u003e\u003ch2\u003eData Availability\u003c/h2\u003e\u003cp\u003eThe data that support the findings of this study are available upon reasonable request.\u003c/p\u003e"},{"header":"References","content":"\u003col\u003e\n \u003cli\u003eAgarwal, A., \u0026amp; Chaudhry, N. (2022). Foreign controlling shareholders and corporate investment. \u003cem\u003eJournal of International Financial Markets, Institutions and Money\u003c/em\u003e,\u003cem\u003e\u0026nbsp;80\u003c/em\u003e.\u003c/li\u003e\n \u003cli\u003eAmin, A., Mollah, S., Kamal, S., Zhao, Y., \u0026amp; Simsek, R. (2024). Independent directors\u0026rsquo; connectedness and bank risk-taking. \u003cem\u003eJournal of Financial Stability\u003c/em\u003e,\u003cem\u003e\u0026nbsp;75\u003c/em\u003e.\u003c/li\u003e\n \u003cli\u003eAn, X., Liang, J., Ye, X., \u0026amp; Wang, X. (2024). Independent directors\u0026rsquo; duty performance and corporate green innovation. \u003cem\u003eFinance Research Letters\u003c/em\u003e,\u003cem\u003e\u0026nbsp;62\u003c/em\u003e.\u003c/li\u003e\n \u003cli\u003eBilal, Komal, B., Ezeani, E., Usman, M., Kwabi, F., \u0026amp; Ye, C. (2023). 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Evidence from Iran. \u003cem\u003eAsian Review of Accounting\u003c/em\u003e,\u003cem\u003e\u0026nbsp;29\u003c/em\u003e(2), 251-267.\u003c/li\u003e\n \u003cli\u003eMerendino, A., \u0026amp; Melville, R. (2019). The board of directors and firm performance: empirical evidence from listed companies. \u003cem\u003eCorporate Governance: The international journal of business in society\u003c/em\u003e,\u003cem\u003e\u0026nbsp;19\u003c/em\u003e(3), 508-551.\u003c/li\u003e\n \u003cli\u003eQuan, Y., \u0026amp; Zhang, W. (2021). Geographic distance and board monitoring: Evidence from the relocation of independent directors [Article]. \u003cem\u003eJournal of Corporate Finance\u003c/em\u003e,\u003cem\u003e\u0026nbsp;66\u003c/em\u003e, Article 101802.\u003c/li\u003e\n \u003cli\u003eRehman, A., Gonenc, H., \u0026amp; Hermes, N. (2023). Corporate social performance of family firms and shareholder protection: An international analysis. \u003cem\u003eJournal of Family Business Strategy\u003c/em\u003e,\u003cem\u003e\u0026nbsp;14\u003c/em\u003e(2), 100550.\u003c/li\u003e\n \u003cli\u003eRizzotti, D., \u0026amp; Greco, A. M. (2013). Determinants of Board of Statutory Auditor and Internal Control Committee Diligence: A Comparison Between Audit Committee and the Corresponding Italian Committees. \u003cem\u003eThe International Journal of Accounting\u003c/em\u003e,\u003cem\u003e\u0026nbsp;48\u003c/em\u003e(1), 84-110.\u003c/li\u003e\n \u003cli\u003eShang, D., \u0026amp; Yuan, D. (2023). Independent directors\u0026rsquo; geographic distance, high-speed railway, and corporate cash holdings. \u003cem\u003eEconomic Modelling\u003c/em\u003e,\u003cem\u003e\u0026nbsp;121\u003c/em\u003e.\u003c/li\u003e\n \u003cli\u003eShang, D., Yuan, D., Li, D., \u0026amp; Fan, L. (2023). 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The Entrenchment Problem, Corporate Governance Mechanisms, and Firm Value. \u003cem\u003eContemporary Accounting Research\u003c/em\u003e,\u003cem\u003e\u0026nbsp;27\u003c/em\u003e(4), 1169-1206.\u003c/li\u003e\n \u003cli\u003eZhang, Lv, S., \u0026amp; Lin, W. (2020). Related guarantee and implicit tunneling. \u003cem\u003ePacific-Basin Finance Journal\u003c/em\u003e,\u003cem\u003e\u0026nbsp;62\u003c/em\u003e, 101359.\u003c/li\u003e\n \u003cli\u003eZhang, L. (2020). The effects of trading rights and ownership structures on the informativeness of accounting earnings: Evidence from China\u0026rsquo; split share structure reform. \u003cem\u003eResearch in International Business and Finance\u003c/em\u003e,\u003cem\u003e\u0026nbsp;51\u003c/em\u003e.\u003c/li\u003e\n \u003cli\u003eZimon, G., Appolloni, A., Tarighi, H., Shahmohammadi, S., \u0026amp; Daneshpou, E. (2021). Earnings Management, Related Party Transactions and Corporate Performance: The Moderating Role of Internal Control. \u003cem\u003eRisks\u003c/em\u003e,\u003cem\u003e\u0026nbsp;9\u003c/em\u003e(8).\u003c/li\u003e\n\u003c/ol\u003e"}],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":true,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":false,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":false,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":false,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"humanities-and-social-sciences-communications","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":false,"externalIdentity":"palcomms","sideBox":"Learn more about [Humanities \u0026 Social Sciences Communications](http://www.nature.com/palcomms/)","snPcode":"41599","submissionUrl":"https://submission.springernature.com/new-submission/41599/3","title":"Humanities and Social Sciences Communications","twitterHandle":"","acdcEnabled":true,"dfaEnabled":true,"editorialSystem":"stoa","reportingPortfolio":"Nature AJ","inReviewEnabled":true,"inReviewRevisionsEnabled":false},"keywords":"Independent directors, audit committee, tunneling behavior, internal controls","lastPublishedDoi":"10.21203/rs.3.rs-7404401/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-7404401/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThis study examines the impact of independent directors’ diligence within audit committees on mitigating controlling shareholders’ tunneling behavior. Specifically, this study explores how this mitigating effect performs under different frequency of audit committee meetings and geographical location of independent directors. The study also investigates the moderating roles of independent directors’ financial expertise and the quality of internal control. Using a multi-dimensional panel fixed effects model, this study reveals that the effectiveness of independent directors’ diligence in mitigating tunneling is more pronounced with higher audit committee meeting frequency and greater convenient geographical location. Moreover, the financial expertise of independent directors and strong internal control significantly strengthen this mitigating effect. This study contributes to the literature by expanding the understanding of independent directors’ role in corporate governance, highlighting the importance of both external governance mechanisms and internal control systems in reducing agency costs. The findings offer valuable policy implications for strengthening corporate governance practices in China.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eJEL Classification: \u003c/strong\u003eM40; M41; G30\u003c/p\u003e","manuscriptTitle":"Independent Directors’ Diligence and Tunneling: An Investigation from Audit Committee","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2025-09-16 09:01:21","doi":"10.21203/rs.3.rs-7404401/v1","editorialEvents":[{"type":"communityComments","content":0},{"type":"decision","content":"Revision requested","date":"2025-10-29T18:59:45+00:00","index":"","fulltext":""},{"type":"editorInvitedReview","content":"","date":"2025-10-02T21:28:01+00:00","index":"hide","fulltext":""},{"type":"editorInvitedReview","content":"","date":"2025-10-01T16:37:18+00:00","index":"hide","fulltext":""},{"type":"editorInvitedReview","content":"","date":"2025-09-20T18:05:09+00:00","index":"hide","fulltext":""},{"type":"editorInvitedReview","content":"","date":"2025-09-11T12:03:24+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"85848672562765775979116668042313329435","date":"2025-09-11T07:43:39+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"6887940910445998348311397980201684516","date":"2025-09-11T06:58:45+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"151335617512570044939692042097492826741","date":"2025-09-11T06:28:10+00:00","index":"hide","fulltext":""},{"type":"editorInvitedReview","content":"","date":"2025-09-10T09:52:46+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"154944613947251348682804006099259211892","date":"2025-09-09T20:55:42+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"290424319726059724362242607354311336648","date":"2025-09-09T08:20:50+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"51792205223195700808003856477674437117","date":"2025-09-09T04:22:20+00:00","index":"hide","fulltext":""},{"type":"reviewerAgreed","content":"102162518919632592897222069810858014485","date":"2025-09-09T03:40:52+00:00","index":"hide","fulltext":""},{"type":"reviewersInvited","content":"","date":"2025-09-09T02:34:39+00:00","index":"","fulltext":""},{"type":"editorInvited","content":"","date":"2025-09-05T14:20:54+00:00","index":"","fulltext":""},{"type":"editorAssigned","content":"","date":"2025-09-05T14:20:14+00:00","index":"","fulltext":""},{"type":"checksComplete","content":"","date":"2025-08-20T09:53:38+00:00","index":"","fulltext":""},{"type":"submitted","content":"Humanities and Social Sciences Communications","date":"2025-08-19T04:35:56+00:00","index":"","fulltext":""}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"humanities-and-social-sciences-communications","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":false,"externalIdentity":"palcomms","sideBox":"Learn more about [Humanities \u0026 Social Sciences Communications](http://www.nature.com/palcomms/)","snPcode":"41599","submissionUrl":"https://submission.springernature.com/new-submission/41599/3","title":"Humanities and Social Sciences Communications","twitterHandle":"","acdcEnabled":true,"dfaEnabled":true,"editorialSystem":"stoa","reportingPortfolio":"Nature AJ","inReviewEnabled":true,"inReviewRevisionsEnabled":false}}],"origin":"","ownerIdentity":"10fe987d-20e4-4c89-b231-ea27d6bdd774","owner":[],"postedDate":"September 16th, 2025","published":true,"recentEditorialEvents":[],"rejectedJournal":[],"revision":"","amendment":"","status":"under-review","subjectAreas":[{"id":54753223,"name":"Business and commerce/Business and management"},{"id":54753224,"name":"Social science/Business and management"},{"id":54753225,"name":"Social science/Social policy"}],"tags":[],"updatedAt":"2026-03-01T09:08:04+00:00","versionOfRecord":[],"versionCreatedAt":"2025-09-16 09:01:21","video":"","vorDoi":"","vorDoiUrl":"","workflowStages":[]},"version":"v1","identity":"rs-7404401","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-7404401","identity":"rs-7404401","version":["v1"]},"buildId":"8U1c8b4HqxoKbykW_rLl7","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}