Ferreting Out Tunneling: An Application to Indian Business Groups

47 Pages Posted: 12 Oct 2000 Last revised: 25 Sep 2022

See all articles by Marianne Bertrand

Marianne Bertrand

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Paras Mehta

Massachusetts Institute of Technology (MIT) - Department of Economics

Sendhil Mullainathan

University of Chicago; National Bureau of Economic Research (NBER)

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Date Written: October 2000

Abstract

In many countries, controlling shareholders are accused of tunneling, transferring resources from companies where they have few cash flow rights to ones where they have more cash flow rights. Quantifying the extent of such tunneling, however, has proven difficult because of its illicit nature. This paper develops a general empirical technique for quantifying tunneling. We use the responses of different firms to performance shocks to map out the flow of resources within a group of firms and to quantify the extent to which the marginal dollar is tunneled. We apply our technique to data on Indian business groups. The results suggest a significant amount of tunneling between firms in these groups.

Suggested Citation

Bertrand, Marianne and Mehta, Paras P. and Mullainathan, Sendhil, Ferreting Out Tunneling: An Application to Indian Business Groups (October 2000). NBER Working Paper No. w7952, Available at SSRN: https://ssrn.com/abstract=245729

Marianne Bertrand (Contact Author)

University of Chicago - Booth School of Business ( email )

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Paras P. Mehta

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Sendhil Mullainathan

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