Dr. XIE Yuying, SabrinaSabrinaDr. XIE YuyingDr. LEE Hua2018-04-192018-04-192018Review of Economics & Finance, 2018, vol. 11(1), pp. 67-82.1923-84011923-7529http://hdl.handle.net/20.500.11861/5066Open AccessUsing a sample of Hong Kong listed firms that announced related party transactions, this paper examines the informativeness of financial reports prior to the announcements of related party transactions. We find that the value relevance of financial reports is higher for firms undertaking asset or equity tunneling transactions than for firms undertaking other types of related party transactions in the period prior to the announcement of transactions. Given firms with forthcoming tunneling transactions, financial reports are more value relevant for firms with more conservative accounting than for firms with less conservative accounting. Further, the association between conservatism and entrenchment effect is stronger for firms with forthcoming tunneling transactions. Collectively, the evidence suggests that firms adopt conservative accounting to increase the informativeness of financial reports prior to the tunneling transactions, which assists controlling shareholders in expropriating wealth from the minority shareholders from the tunneling transactions.enFinancial Statement InformativenessConservatismRelated Party TransactionConnected TransactionPeer Reviewed Journal Article