Unbundling and Measuring Tunneling

42 Pages Posted: 17 Nov 2007 Last revised: 24 Jan 2015

See all articles by Vladimir A. Atanasov

Vladimir A. Atanasov

William and Mary - Raymond A. Mason School of Business

Bernard S. Black

Northwestern University

Conrad S. Ciccotello

Daniels College of Business, University of Denver

Date Written: November 20, 2014


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 Classification: G32, G34, K22

Suggested Citation

Atanasov, Vladimir A. and Black, Bernard S. and Ciccotello, Conrad S., Unbundling and Measuring Tunneling (November 20, 2014). as published in 2014 University of Illinois Law Review 1697-1738, ECGI - Finance Working Paper, McCombs Research Paper Series, U of Texas Law, Law and Econ Research Paper No. 117, Available at SSRN: https://ssrn.com/abstract=1030529 or http://dx.doi.org/10.2139/ssrn.1030529

Vladimir A. Atanasov (Contact Author)

William and Mary - Raymond A. Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States

Bernard S. Black

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Conrad S. Ciccotello

Daniels College of Business, University of Denver ( email )

2201 S. Gaylord St
Denver, CO 80208-2685
United States

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