Working Paper: NBER ID: w7523
Authors: Simon Johnson; Rafael La Porta; Florencio Lopez-de-Silanes; Andrei Shleifer
Abstract: Tunnelling is defined as the transfer of assets and profits out of firms for the benefit of their controlling shareholders. We describe the various forms that tunnelling can take, and examine under what circumstances it is legal. We discuss two important legal principles -- the duty of care and the duty of loyalty -- which courts use to analyze cases involving tunnelling. Several important legal cases from France, Belgium, and Italy illustrate how and why the law accommodates tunnelling in civil law countries, and why certain kinds of tunnelling are less likely to pass legal scrutiny in common law countries.
Keywords: Tunnelling; Legal Frameworks; Minority Shareholders
JEL Codes: G38; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Effective legal protections against tunnelling (K24) | Milder financial crises during the 1997-1998 crisis (F65) |
| Legal protections for minority shareholders (G34) | Prevalence of tunnelling (E26) |
| Duty of care (G33) | Higher incidence of tunnelling in civil law countries (K13) |
| Duty of loyalty (G34) | Facilitates expropriation in civil law countries (H13) |
| Legal frameworks (K40) | Behavior of controlling shareholders (G34) |