Law and Tunneling

Law and Tunneling

Vladimir Atanasov, Bernard Black, Conrad Ciccotello

Series number :

Serial Number: 

Date posted :

May 01 2011

Last revised :

June 06 2011
SSRN Share


  • tunneling • 
  • dilution • 
  • freezeout • 
  • controlling shareholders

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. 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.

For a shorter version of this article, see Atanasov, Black, and Ciccotello, Self-Dealing by Corporate Insiders: Legal Constraints and Loopholes, in Brett McDonnell and Claire Hill, editors, Research Handbook on the Economics of Corporate Law ch. 22 (forthcoming 2011), available at

Published in

Published in: 
Publication Title: 
Journal of Corporation Law
Vol. 37, pp. 1-49, 2011


Real name:
Vladimir Atanasov
Fellow, Research Member
Northwestern University Law School and Kellogg School of Management Law School
Real name:
Conrad Ciccotello