Tunneling
Working Paper
Powering Preemptive Rights with Presubscription Disclosure
Preemptive rights can prevent cheap-issuance tunneling by a controller when outside investors know that the offered securities are cheap. But when outsiders cannot tell whether the securities are cheap or overpriced, preemptive rights fail to...Read more
The Law and (Some) Finance of Related Party Transactions: An Introduction
This paper is the introductory chapter of Luca Enriques and Tobias Tröger (eds.), The Law and Finance of Related Party Transactions (Cambridge University Press: forthcoming). Its goal is to sketch out the individual chapters’ contributions to the...Read more
Optimally Restrained Tunneling: The Puzzle of Controlling Shareholders’ “Generous” Exploitation in Bad-Law Jurisdictions
Although controlling shareholder agency problems have been well studied so far, many questions still remain unanswered. In particular, an important puzzle in “bad-law” jurisdictions is: why some controlling shareholders (“roving controllers”)...Read more
Cheap-Stock Tunneling Around Preemptive Rights
Preemptive rights are thought to protect minority shareholders from cheap-stock tunneling by a controlling shareholder. We show that preemptive rights, while making cheap-stock tunneling more difficult, cannot prevent it when asymmetric...Read more
RPTs in SOEs: Tunneling, Propping, and Policy Channeling
This essay, prepared for a volume on related-party transactions (RPTs), explores the economic, legal and policy challenges associated with RPTs in state-owned enterprises (SOEs). We show that RPTs in SOEs differ from RPTs in privately owned...Read more
The Effect of Minority Veto Rights on Controller Tunneling
A central challenge in the regulation of controlled firms is curbing controller tunneling. As independent directors and fiduciary duties are widely seen as not up to the task, a number of jurisdictions have given minority shareholders veto rights...Read more
Executive Compensation: When a Firm is a Business Group Member
This paper examines how executive pay is set when a firm is a business group member. Using Korea as a laboratory setting, we find that member firm?s cash compensation for its executives is positively linked to the stock performance of other...Read more
When Heirs Become Major Shareholders: Evidence on Tunnelling and Succession through Related-Party Transactions
In family firms, the succession of controlling equity stake to next generation is an issue of paramount importance. This, however, can be a major challenge in the presence of heavy inheritance or gift tax burden (high tax rate and absence of tax-...Read more
How Does Law Affect Finance? An Examination of Equity Tunneling in Bulgaria
We model and test the mechanisms through which securities law affects tunneling and tunneling affects firm valuation. In 2002, Bulgaria adopted securities law changes which limit two forms of equity tunneling - dilutive equity offerings and...Read more
Related Party Transactions: Policy Options and Real-World Challenges (With a Critique of the European Commission Proposal)
This paper provides a legal and policy analysis of transactions between a corporation and one of its ?related parties.? It first highlights the reasons why related party transactions (?RPTs?) are so common around the world. Next, it better...Read more
Regulation and self-regulation of related party transactions in Italy: An empirical analysis
This paper assesses how Italian companies have implemented the regulation on related party transactions enacted by Consob in 2010. Companies have been given some degree of freedom in devising their internal codes: they may ?opt-up? or ?opt-down?...Read more