Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5090719 | Journal of Banking & Finance | 2008 | 10 Pages |
Abstract
This paper links existence of the pyramidal ownership structure to tunneling and propping. Tunneling refers to a transfer of resources from a lower-level firm to a higher-level firm in the pyramidal chain, whereas propping concerns a transfer in the opposite direction intended to bail out the receiving firm from bankruptcy. We show that tunneling alone cannot justify the pyramidal structure unless outside investors are myopic, since rational outside investors anticipate tunneling and adjust their willingness-to-pay for the firm's shares accordingly. With propping, however, they may be willing to be expropriated in exchange for implicit insurance against bankruptcy.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Yohanes E. Riyanto, Linda A. Toolsema,