Title: Propping today, tunnelling tomorrow: expropriation motives and firm performance

Authors: Pankaj Gupta; Yogesh Maheshwari

Addresses: Indian Institute of Management Amritsar, Inside Government Polytechnic Campus, Amritsar – 143105, Punjab, India ' Indian Institute of Management Indore, Rau-Pithampur Road, Indore – 453556, India

Abstract: The purpose of this paper is to examine propping and tunnelling in group firms which have booked losses and performed badly in past years. We offer partial explanation to the group survival puzzle; that under institutional motivations such as avoidance of delisting and refinancing risks, group firms witness tunnelling subsequent to propping and thereby expropriate public shareholders in the long run. Our results confirm that tunnelling happens typically after prior propping up. Additionally, the paper analyses the effect of propping and tunnelling on current and future operating performance respectively. The findings exhibit that propping affects the current year's operating performance of the firm positively, while tunnelling affects the performance in future years. The findings of this study will help public shareholders to better assess risk and return while investing in group firms. Also, the study can be used as a reference by regulatory bodies when making policies to curb such expropriating activities.

Keywords: business groups; propping; tunnelling; delisting risk; refinancing risk; firm performance.

DOI: 10.1504/IJCG.2022.124762

International Journal of Corporate Governance, 2022 Vol.13 No.1, pp.84 - 101

Received: 19 Dec 2020
Accepted: 31 Jan 2022
Published online: 08 Aug 2022 *

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