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Financial Tunnelling and the Revenge of the Insider System

  • Jeremy Grant
  • Thomas Kirchmaier


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    In this paper, we document how European companies can use financial tunnelling to the disadvantage of minority shareholders, despite improved legislation directed at eliminating such activities. In four case studies, two German and two Italian, we document how newly established corporate governance standards were successfully circumvented by dominant shareholders, major financial institutions, politicians, and in the worst case the regulator. These cases demonstrate that for effective Corporate Governance to work, one not only has to change the law, but even more importantly, one has to ensure the widespread acceptance of new rules. The litmus test of corporate governance reforms in any country is whether the rules are applied objectively in situations where powerful elites perceive they are disadvantaged under the new regulations.

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    Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp536.

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    Date of creation: Apr 2005
    Date of revision:
    Handle: RePEc:fmg:fmgdps:dp536
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