How does law affect finance? An examination of equity tunneling in Bulgaria

Vladimir Atanasov, Bernard Black, Conrad Ciccotello and Stanley Gyoshev

Journal of Financial Economics, 2010, vol. 96, issue 1, 155-173

Abstract: We model and test the mechanisms through which law affects tunneling and tunneling affects firm valuation. In 2002, Bulgaria adopted legal changes which limit equity tunneling through dilutive equity offerings and freezeouts. Following the changes, minority shareholders participate equally in equity offerings, where before they suffered severe dilution; freezeout offer price ratios quadruple; and Tobin's q rises sharply for firms at high risk of tunneling. The paper shows the importance of legal rules in limiting equity tunneling, the role of equity tunneling risk as a factor in determining equity prices, and substitution by controlling shareholders between different forms of tunneling.

Keywords: Equity; tunneling; Preemptive; rights; Dilution; Freezeout; Controlling; shareholder; Securities; law; Emerging; markets (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (59)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304-405X(09)00253-0
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:96:y:2010:i:1:p:155-173

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().