Holding Company Discounts and Business Groups Optimal Bailout of Subsidiaries
In this paper, we develop a simple two period model of the holding company-subsidiary relationship that analyzes the option faced by controlling shareholders to optimally bailout subsidiary companies using the holding company’s financial resources. This behavior is rational under several incentive structures originated in the presence of group externalities, synergies and private benefits of control. The results of our model are consistent with recent empirical evidence of holding company discounts, and with the existence of diffuse limits among the affiliated firms of a group. Our results allow us to interpret the presence of holding company discounts as evidence that bailing-out may arise for reasons other, and less conflictive, than the perpetuation of tunneling benefits by the controlling shareholder, such as the perpetuation of benefits of reputation and group synergies.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999.
"Corporate Ownership Around the World,"
Journal of Finance,
American Finance Association, vol. 54(2), pages 471-517, 04.
- 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.
- Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 1998. "Corporate Ownership Around the World," Harvard Institute of Economic Research Working Papers 1840, Harvard - Institute of Economic Research.
- Hellwig, Martin F, 1981. "Bankruptcy, Limited Liability, and the Modigliani-Miller Theorem," American Economic Review, American Economic Association, vol. 71(1), pages 155-170, March.
- Friedman, Eric & Johnson, Simon & Mitton, Todd, 2003.
"Propping and tunneling,"
Journal of Comparative Economics,
Elsevier, vol. 31(4), pages 732-750, December.
- repec:hrv:faseco:30747162 is not listed on IDEAS
- Billmeier, Andreas & Massa, Isabella, 2008.
"Go long or short in pyramids? News from the Egyptian stock market,"
International Review of Financial Analysis,
Elsevier, vol. 17(5), pages 949-970, December.
- Isabella Massa & Andreas Billmeier, 2007. "Go Long or Short in Pyramids? News from the Egyptian Stock Market," IMF Working Papers 07/179, International Monetary Fund.
- Andrei Shleifer & Robert W. Vishny, 1995.
"A Survey of Corporate Governance,"
Harvard Institute of Economic Research Working Papers
1741, Harvard - Institute of Economic Research.
- Bianco, Magda & Nicodano, Giovanna, 2006. "Pyramidal groups and debt," European Economic Review, Elsevier, vol. 50(4), pages 937-961, May.
- Stein, Jeremy C, 1997.
" Internal Capital Markets and the Competition for Corporate Resources,"
Journal of Finance,
American Finance Association, vol. 52(1), pages 111-133, March.
- Jeremy C. Stein, 1995. "Internal Capital Markets and the Competition for Corporate Resources," NBER Working Papers 5101, National Bureau of Economic Research, Inc.
- Marc Levy, 2006.
"Control in Pyramidal Structures,"
Working Papers CEB
06-023.RS, ULB -- Universite Libre de Bruxelles.
- Yohanes E. Riyanto & Linda A. Toolsema, 2004.
"Tunneling and Propping: A Justification for Pyramidal Ownership,"
Econometric Society 2004 Far Eastern Meetings
639, Econometric Society.
- Riyanto, Yohanes E. & Toolsema, Linda A., 2008. "Tunneling and propping: A justification for pyramidal ownership," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2178-2187, October.
- Riyanto, Yohanes E. & Toolsema, Linda A., 2004. "Tunneling and Propping: A Justification for Pyramidal Ownership," Research Report 04E29, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
- Yohanes E. Riyanto & Linda A. Toolsema, 2004. "Tunneling and Propping: A Justification for Pyramidal Ownership," Departmental Working Papers wp0409, National University of Singapore, Department of Economics.
- Fernando Lefort & Eduardo Walker, 2000. "Ownership And Capital Structure Of Chilean Conglomerates:Facts And Hypotheses For Governance," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 3(1), pages 3-27.
- Gopalan, Radhakrishnan & Nanda, Vikram & Seru, Amit, 2007. "Affiliated firms and financial support: Evidence from Indian business groups," Journal of Financial Economics, Elsevier, vol. 86(3), pages 759-795, December.
- Jae-Seung Baek & Jun-Koo Kang & Inmoo Lee, 2006. "Business Groups and Tunneling: Evidencefrom Private Securities Offeringsby Korean Chaebols," Journal of Finance, American Finance Association, vol. 61(5), pages 2415-2449, October.
- Heitor V. Almeida & Daniel Wolfenzon, 2006. "A Theory of Pyramidal Ownership and Family Business Groups," Journal of Finance, American Finance Association, vol. 61(6), pages 2637-2680, December.
- Gonenc, Halit & Hermes, Niels, 2008. "Propping: Evidence from new share issues of Turkish business group firms," Journal of Multinational Financial Management, Elsevier, vol. 18(3), pages 261-275, July.
- Fernando LEFORT & Eduardo WALKER, 2007. "Do Markets Penalize Agency Conflicts Between Controlling And Minority Shareholders? Evidence From Chile," The Developing Economies, Institute of Developing Economies, vol. 45(3), pages 283-314.
- Kee-Hong Bae & Jun-Koo Kang & Jin-Mo Kim, 2002. "Tunneling or Value Added? Evidence from Mergers by Korean Business Groups," Journal of Finance, American Finance Association, vol. 57(6), pages 2695-2740, December.
- Atanasov, Vladimir & Black, Bernard & Ciccotello, Conrad & Gyoshev, Stanley, 2010. "How does law affect finance? An examination of equity tunneling in Bulgaria," Journal of Financial Economics, Elsevier, vol. 96(1), pages 155-173, April.
- repec:hrv:faseco:30728046 is not listed on IDEAS
- Atanasov, Vladimir, 2005. "How much value can blockholders tunnel? Evidence from the Bulgarian mass privatization auctions," Journal of Financial Economics, Elsevier, vol. 76(1), pages 191-234, April.
When requesting a correction, please mention this item's handle: RePEc:ptl:wpaper:34. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Enrique Calfucura)
If references are entirely missing, you can add them using this form.