BY VLADIMIR ATANASOV, BERNARD BLACK & CONRAD S. CICCOTELLO:
Managers and controlling shareholders (insiders) can extract (tunnel) wealth from firms using a variety of methods. Tunneling occurs across both developed1 and developing markets, and impacts both trading prices and premia paid for corporate  control. This Article studies how effectively United States’ rules limit tunneling by insiders of public companies. We consider three broad types of tunneling: cash flow tunneling, in which insiders extract some of the firm’s current cash flows; asset tunneling, in which insiders buy (sell) assets from (to) the firm at below (above) market prices; and equity tunneling, in which insiders acquire equity at below market price, either from the firm through an equity issuance or from other shareholders, often in a freezeout.
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