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Unbundling and Measuring TunnelingVladimir A. AtanasovCollege of William and Mary - Mason School of Business Bernard S. BlackNorthwestern University - School of Law; Northwestern University - Kellogg School of Management; European Corporate Governance Institute (ECGI) Conrad S. CiccotelloGeorgia 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.
Number of Pages in PDF File: 52 Keywords: tunneling, dilution, freezeout, transfer pricing, shareholder protection JEL Classification: G32, G34, K22 working papers seriesDate posted: November 17, 2007 ; Last revised: February 2, 2008Suggested CitationContact Information
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