Ferreting Out Tunneling: An Application to Indian Business Groups

47 Pages Posted: 20 Oct 2000  

Marianne Bertrand

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Paras Mehta

Massachusetts Institute of Technology (MIT) - Department of Economics

Sendhil Mullainathan

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2000

Abstract

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.

JEL Classification: G3

Suggested Citation

Bertrand, Marianne and Mehta, Paras and Mullainathan, Sendhil, Ferreting Out Tunneling: An Application to Indian Business Groups (September 2000). MIT Dept. of Economics Working Paper No. 00-28. Available at SSRN: https://ssrn.com/abstract=246001 or http://dx.doi.org/10.2139/ssrn.246001

Marianne Bertrand

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-5943 (Phone)

HOME PAGE: http://gsbwww.uchicago.edu/fac/marianne.bertrand/vita/cv_0604.pdf

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR)

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Paras P. Mehta

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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617-253-3592 (Phone)
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Sendhil Mullainathan (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-496-2720 (Phone)
617-495-7730 (Fax)

National Bureau of Economic Research (NBER) ( email )

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617-876-2742 (Fax)

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