Propping and Tunneling / Eric Friedman, Simon Johnson, Todd Mitton.

Format:

Book

Author/Creator:

Friedman, Eric.

Contributor:

National Bureau of Economic Research.

Johnson, Simon.

Mitton, Todd.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9949.

NBER working paper series no. w9949

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

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.

Notes:

Print version record

September 2003.