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Unbundling and Measuring Tunneling

Vladimir A. Atanasov
College of William and Mary - Mason School of Business

Bernard S. Black
University of Texas at Austin - School of Law; McCombs School of Business, University of Texas at Austin; European Corporate Governance Institute (ECGI); Northwestern University - School of Law; Northwestern University - Kellogg School of Management

Conrad S. Ciccotello
Georgia State University - Department of Finance


January 2008

U of Texas Law, Law and Econ Research Paper No. 117
ECGI - Finance Working Paper
McCombs Research Paper Series, Forthcoming

Abstract:     
Managers and controlling shareholders can extract wealth from firms in many different ways. We develop here a framework for analyzing different types of "tunneling" transactions. We divide tunneling into three broad groups: cash flow, asset, and equity tunneling. We model each type of tunneling as decomposable into a probability of tunneling and a magnitude. We present a simple model of how each type of tunneling affects share prices and financial metrics and provide two detailed case studies -- Gazprom in Russia and Coca-Cola in the United States -- to illustrate how these types of tunneling can occur in both emerging and developed markets. Finally, we explore a number of uses of our decomposition approach -- for empirical research into the nature and extent of tunneling; for asset pricing, especially in high-tunneling-risk environments; for legal regulation of tunneling; and for accounting rules.

Keywords: tunneling, dilution, freezeout, transfer pricing, shareholder protection

JEL Classifications: G32, G34, K22

Working Paper Series

Date posted: November 17, 2007 ; Last revised: February 02, 2008

Suggested Citation

Atanasov, Vladimir A., Black, Bernard S. and Ciccotello, Conrad S., Unbundling and Measuring Tunneling (January 2008). U of Texas Law, Law and Econ Research Paper No. 117; ECGI - Finance Working Paper; McCombs Research Paper Series, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1030529


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Contact Information

Vladimir A. Atanasov (Contact Author)
College of William and Mary - Mason School of Business ( email )
P.O. Box 8795
Williamsburg, VA 23187-8795
United States
Bernard S. Black
University of Texas at Austin - School of Law ( email )
Austin, TX 78705
United States
512-471-4632 (Phone)
McCombs School of Business, University of Texas at Austin
Austin, TX 78712
United States
European Corporate Governance Institute (ECGI)
Brussels Belgium
Northwestern University - School of Law
375 E. Chicago Ave
Chicago, IL 60611
United States
Northwestern University - Kellogg School of Management
2001 Sheridan Road
Evanston, IL 60208
United States
Conrad S. Ciccotello
Georgia State University - Department of Finance ( email )
University Plaza
Atlanta, GA 30303-3083
United States
404-651-1711 (Phone)
404-651-4219 (Fax)
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References: 63
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