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Family Business Groups and Tunneling Framework : Application and Evidence from Pakistan

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  • Atif Ikram

    (LUMS)

  • Syed Ali Asjad Naqvi
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    Abstract

    In Pakistan there is a ubiquity of firms in which there exists a controlling shareholder, usually in the form of the family. By and large this control is maintained via crossshareholding and inter-locked directorships which in turn is facilitated by the pyramidal organization of these firms. Moreover, these controlling families have often been alleged of tunneling resources from firms in which they have few cash flow rights to ones in which they have more cash flow rights. This paper attempts to quantify the extent of tunneling prevalent in Pakistani family business groups. The framework that is adopted is one that has been presented by Mullainathan et al. (2000) : we use the responses of different firms to performance shocks and map out the flow of resources within a group of firms to quantify the extent to which the marginal rupee is tunneled. We apply this technique to data on Pakistan business groups.

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    Bibliographic Info

    Paper provided by East Asian Bureau of Economic Research in its series Microeconomics Working Papers with number 22263.

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    Date of creation: Jan 2005
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    Handle: RePEc:eab:microe:22263

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    Related research

    Keywords: Pakistan; tunneling; business groups; crossshareholding;

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    References

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    1. Maitreesh Ghatak & Raja Kali, 2001. "Financially Interlinked Business Groups," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(4), pages 591-619, December.
    2. Tarun Khanna & Krishna Palepu, 2000. "Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups," Journal of Finance, American Finance Association, vol. 55(2), pages 867-891, 04.
    3. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2000. "Ferreting Out Tunneling: An Application to Indian Business Groups," NBER Working Papers 7952, National Bureau of Economic Research, Inc.
    4. Wenyi Chu, 2004. "Are Group-Affiliated Firms Really More Profitable than Nonaffiliated?," Small Business Economics, Springer, vol. 22(5), pages 391-405, 06.
    5. Randall Morck & Andrei Shleifer & Robert W. Vishny, 1988. "Alternative Mechanisms for Corporate Control," NBER Working Papers 2532, National Bureau of Economic Research, Inc.
    6. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998. "Corporate Ownership Around the World," NBER Working Papers 6625, National Bureau of Economic Research, Inc.
    7. Stijn Claessens & Joseph P. H. Fan, 2002. "Corporate Governance in Asia: A Survey," International Review of Finance, International Review of Finance Ltd., vol. 3(2), pages 71-103.
    8. Alfred D. Chandler, 1969. "Strategy and Structure: Chapters in the History of the American Industrial Enterprise," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262530090, December.
    9. Amjad,Rashid, 2008. "Private Industrial Investment in Pakistan," Cambridge Books, Cambridge University Press, number 9780521053617, October.
    10. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    11. Amjad, Rashid, 1984. "The management of Pakistan's economy 1947-82," MPRA Paper 35850, University Library of Munich, Germany.
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