Tunneling Through Share Issuance

60 Pages Posted: 14 Mar 2012

See all articles by Borja Larrain

Borja Larrain

Pontificia Universidad Catolica de Chile

Date Written: March 13, 2012


We explore a novel way of equity-tunneling in which controlling shareholders sell shares above fair price to minority investors. We study this with a hand-collected dataset containing the ownership stakes of controlling shareholders in an emerging market over the past 20 years. When issuing shares the controlling shareholder can either maintain or change his ownership stake depending on how many of the new shares he subscribes. Issuance predicts poor future returns only when the stake of the controlling shareholder is significantly reduced. Consistent with tunneling, the result is stronger in the absence of institutional minority investors and during hot markets.

Keywords: tunneling, share issuance, market timing, large shareholders

JEL Classification: G32

Suggested Citation

Larrain, Borja, Tunneling Through Share Issuance (March 13, 2012). Available at SSRN: https://ssrn.com/abstract=2021141 or http://dx.doi.org/10.2139/ssrn.2021141

Borja Larrain (Contact Author)

Pontificia Universidad Catolica de Chile ( email )

Ave. Vicuna Mackenna 4860, Macul

HOME PAGE: http://economiayadministracion.uc.cl/personal/blarrain/

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