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Title: Tunneling and propping: A justification for pyramidal ownership
Authors: Riyanto, Y.E. 
Toolsema, L.A.
Keywords: Business groups
Ownership structure
Issue Date: 2008
Citation: Riyanto, Y.E., Toolsema, L.A. (2008). Tunneling and propping: A justification for pyramidal ownership. Journal of Banking and Finance 32 (10) : 2178-2187. ScholarBank@NUS Repository.
Abstract: This paper links existence of the pyramidal ownership structure to tunneling and propping. Tunneling refers to a transfer of resources from a lower-level firm to a higher-level firm in the pyramidal chain, whereas propping concerns a transfer in the opposite direction intended to bail out the receiving firm from bankruptcy. We show that tunneling alone cannot justify the pyramidal structure unless outside investors are myopic, since rational outside investors anticipate tunneling and adjust their willingness-to-pay for the firm's shares accordingly. With propping, however, they may be willing to be expropriated in exchange for implicit insurance against bankruptcy. © 2008 Elsevier B.V. All rights reserved.
Source Title: Journal of Banking and Finance
ISSN: 03784266
DOI: 10.1016/j.jbankfin.2007.12.044
Appears in Collections:Staff Publications

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