Ferreting Out Tunneling: An Application to Indian Business Groups
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
Massachusetts Institute of Technology (MIT) - Department of Economics
Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
MIT Dept. of Economics Working Paper No. 00-28
In many countries, controlling shareholders are accused of tunneling, transferring resources from companies where they have few cash flow rights to ones where they have more cash flow rights. Quantifying the extent of such tunneling, however, has proven difficult because of its illicit nature. This paper develops a general empirical technique for quantifying tunneling. We use the responses of different firms to performance shocks to map out the flow of resources within a group of firms and to quantify the extent to which the marginal dollar is tunneled. We apply our technique to data on Indian business groups. The results suggest a significant amount of tunneling between firms in these groups.
Number of Pages in PDF File: 47
JEL Classification: G3
Date posted: October 20, 2000
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