Tunnelling

Simon Johnson, Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer

NBER Working Paper No. 7523
Issued in February 2000
NBER Program(s):   CF

Tunnelling is defined as the transfer of assets and profits out of firms for the benefit of their controlling shareholders. We describe the various forms that tunnelling can take, and examine under what circumstances it is legal. We discuss two important legal principles -- the duty of care and the duty of loyalty -- which courts use to analyze cases involving tunnelling. Several important legal cases from France, Belgium, and Italy illustrate how and why the law accommodates tunnelling in civil law countries, and why certain kinds of tunnelling are less likely to pass legal scrutiny in common law countries.

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Published: American Economic Review, Vol. 90, no. 2 (May 2000): 22-27

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