Governance of tunnelling in developing countries: evidence from Bangladesh

Tunnelling (also known as self‐dealing transactions) is defined as non‐arm’s length transactions with related parties of controlling shareholders for their private benefit and at the cost of other shareholders. Tunnelling is a governance issue between controlling shareholders and minority shareholders in both developed and developing countries. However, most studies on tunnelling focus on developed countries with the few exceptions of studies on China, India and Mexico. Using Oliver Williamson’s Market and Hierarchy model, this paper analyses the suitability of the governance requirements on tunnelling in Bangladesh and reports on interviews with non‐independent directors, independent directors and audit committee members. The study thus identifies the limitations and factors that affect the implementation and effectiveness of the current governance requirements to constrain tunnelling in companies in Bangladesh.