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Tunneling and Propping: A Justification for Pyramidal Ownership

  • Riyanto, Yohanes E.
  • Toolsema, Linda A.

    (Groningen University)

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

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File URL: http://irs.ub.rug.nl/ppn/277140862
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Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 04E29.

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Date of creation: 2004
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Handle: RePEc:dgr:rugsom:04e29
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