NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Propping and Tunneling

Eric Friedman, Simon Johnson, Todd Mitton

NBER Working Paper No. 9949
Issued in September 2003
NBER Program(s):   CF

In countries with weak legal systems, there is a great deal of tunnelling by the entrepreneurs who control publicly traded firms. However, under some conditions entrepreneurs prop up their firms, i.e., they use their private funds to benefit minority shareholders. We provide evidence and a model that explains propping. In particular, we suggest that issuing debt can credibly commit an entrepreneur to propping, even though creditors can never take possession of any underlying collateral. This helps to explain why emerging markets with weak institutions sometimes grow rapidly and why they are also subject to frequent economic and financial crises.

download in pdf format
   (300 K)

email paper

This paper is available as PDF (300 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w9949

Published: Friedman, Eric, Simon Johnson and Todd Mitton. "Propping And Tunneling," Journal of Comparative Economics, 2003, v31(4,Dec), 732-750.

Users who downloaded this paper also downloaded these:
Bertrand, Mehta, and Mullainathan w7952 Ferreting Out Tunneling: An Application to Indian Business Groups
Johnson, La Porta, Lopez-de-Silanes, and Shleifer w7523 Tunnelling
Djankov, La Porta, Lopez-de-Silanes, and Shleifer w11883 The Law and Economics of Self-Dealing
Shleifer and Wolfenson w7974 Investor Protection and Equity Markets
Almeida and Wolfenzon w11368 A Theory of Pyramidal Ownership and Family Business Groups
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us