Academic

Atanasov, Black, & Ciccotello on Law & Wealth Extraction from Firms by Insiders

By Lawrence Solum

Vladimir A. Atanasov (College of William and Mary - Mason School of Business), Bernard S. Black (Northwestern University - School of Law; Northwestern University - Kellogg School of Management; European Corporate Governance Institute (ECGI)), & Conrad S. Ciccotello (Georgia State University - Department of Finance) have posted Law and Tunneling on SSRN. Here is the abstract:

Insiders (managers and controlling shareholders) can extract (tunnel) wealth from firms using a variety of methods. This article examines the different ways in which U.S. law limits, or fails to limit, three types of tunneling ? cash flow tunneling, asset tunneling, and equity tunneling. We examine how U.S. corporate, securities, bankruptcy, and tax law, accounting rules, and stock exchange rules impact each form of tunneling, and identify important weaknesses in these rules. Using case studies, we show how tunnelers exploit these gaps. We discuss how decisions to tunnel reflect both legal and informal constraints. We conclude that even though the overall level of tunneling in the U.S. is limited, complex asset and equity transactions and excessive equity compensation can escape both legal and informal constraints.

Full post as published by Legal Theory Blog on March 02, 2011 (boomark / email).