Tunneling and propping: A justification for pyramidal ownership

Yohanes Riyanto and Linda A. Toolsema

Journal of Banking & Finance, 2008, vol. 32, issue 10, 2178-2187

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.

Keywords: Tunneling; Propping; Pyramids; Ownership; structure; Business; groups (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (58)

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Related works:
Working Paper: Tunneling and Propping: A Justification for Pyramidal Ownership (2004)
Working Paper: Tunneling and Propping: A Justification for Pyramidal Ownership (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:32:y:2008:i:10:p:2178-2187

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