Instrumental variable method (2SLS).

Under the current corporate governance model, the second largest shareholder (SLS) is a very special, common and important presence, which becomes an important counterweight to the controlling shareholder (CS). Through a game matrix, this paper explains whether the SLS will supervise the CS’s tunneling behavior. Based on this, we empirically examine the effect of the SLS on CS’s tunneling behavior in Chinese listed firms between 2010 and 2020. The results indicate that the SLS significantly inhibits CS’s tunneling behavior. In addition, the heterogeneity analysis reveals that the negative effect of the SLS on CS’s tunneling behavior is concentrated in non-state-owned enterprises (NSOEs) and enterprises located in regions with better business environment. This paper provides a reference for resolving the current "conflict of interest" among multiple large shareholders (MLSs), as well as evidence to support the governance role of the SLS in listed firms with MLSs.