Tunneling and Propping: A Justification for Pyramidal Ownership

Yohanes Eko Riyanto () and Linda A. Toolsema ()
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Linda A. Toolsema: University of Groningen

Departmental Working Papers from National University of Singapore, Department of Economics

Abstract: This paper presents a formal model of tunneling and propping in a pyramidal ownership structure. Tunneling refers to controlling shareholders shifting resources from one firm to another in the same pyramid. Propping is tunneling that is done to save the receiving firm from bankruptcy. We compare the pyramidal ownership structure to the horizontal ownership structure, in which shifting resources between firms is not possible (i.e. illegal). We show that tunneling may justify the pyramidal structure only in the presence of myopic investors or in combination with propping.

Keywords: Tunneling; Propping; Pyramids; Ownership Structure; Business Groups (search for similar items in EconPapers)
JEL-codes: G32 L22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec
Date: 2004-11
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http://www.fas.nus.edu.sg/ecs/pub/wp/wp0409.pdf (application/pdf)

Related works:
Working Paper: Tunneling and Propping: A Justification for Pyramidal Ownership (2004)
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