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Family Business Groups and Tunneling Framework : Application and Evidence from Pakistan

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  • Atif Ikram

    (LUMS)

  • Syed Ali Asjad Naqvi

Abstract

In Pakistan there is a ubiquity of firms in which there exists a controlling shareholder, usually in the form of the family. By and large this control is maintained via crossshareholding and inter-locked directorships which in turn is facilitated by the pyramidal organization of these firms. Moreover, these controlling families have often been alleged of tunneling resources from firms in which they have few cash flow rights to ones in which they have more cash flow rights. This paper attempts to quantify the extent of tunneling prevalent in Pakistani family business groups. The framework that is adopted is one that has been presented by Mullainathan et al. (2000) : we use the responses of different firms to performance shocks and map out the flow of resources within a group of firms to quantify the extent to which the marginal rupee is tunneled. We apply this technique to data on Pakistan business groups.

Suggested Citation

  • Atif Ikram & Syed Ali Asjad Naqvi, 2005. "Family Business Groups and Tunneling Framework : Application and Evidence from Pakistan," Microeconomics Working Papers 22263, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:microe:22263
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    References listed on IDEAS

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    1. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2002. "Ferreting out Tunneling: An Application to Indian Business Groups," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 121-148.
    2. Maitreesh Ghatak & Raja Kali, 2001. "Financially Interlinked Business Groups," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(4), pages 591-619, December.
    3. Amjad,Rashid, 2008. "Private Industrial Investment in Pakistan," Cambridge Books, Cambridge University Press, number 9780521053617, September.
    4. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    5. repec:bla:jfinan:v:59:y:2004:i:2:p:537-600 is not listed on IDEAS
    6. Tarun Khanna & Krishna Palepu, 2000. "Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups," Journal of Finance, American Finance Association, vol. 55(2), pages 867-891, April.
    7. Amjad, Rashid, 1984. "The management of Pakistan's economy 1947-82," MPRA Paper 35850, University Library of Munich, Germany.
    8. Morck, Randall & Shleifer, Andrei & Vishny, Robert W, 1989. "Alternative Mechanisms for Corporate Control," American Economic Review, American Economic Association, vol. 79(4), pages 842-852, September.
    9. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    10. Wenyi Chu, 2004. "Are Group-Affiliated Firms Really More Profitable than Nonaffiliated?," Small Business Economics, Springer, vol. 22(5), pages 391-405, June.
    11. Stijn Claessens & Joseph P. H. Fan, 2002. "Corporate Governance in Asia: A Survey," International Review of Finance, International Review of Finance Ltd., vol. 3(2), pages 71-103, June.
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    Citations

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    Cited by:

    1. Randall Morck & Bernard Yeung, 2009. "Never Waste a Good Crisis: An Historical Perspective on Comparative Corporate Governance," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 145-179, November.
    2. Ruqia Shaikh & Guo Fei & Muhammad Shaique & Muhammad Rizwan Nazir, 2019. "Control-Enhancing Mechanisms and Earnings Management: Empirical Evidence from Pakistan," JRFM, MDPI, vol. 12(3), pages 1-23, August.
    3. Shahid Hussain & Nabeel Safdar, 2018. "Tunneling: Evidence from Family Business Groups of Pakistan," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 10(2), pages 97-122, June.
    4. Ishtiaq AHMAD & Syed Zaheer ABBAS KAZMI, 2016. "A Financial Performance Comparison Of Group And Non-Group Firms In Textile Sector Of Pakistan," Network Intelligence Studies, Romanian Foundation for Business Intelligence, Editorial Department, issue 8, pages 143-150, December.
    5. Shah, Muhammad Hashim & Xiao, Zuoping & Abdullah, & Quresh, Shakir & Ahmad, Mushtaq, 2020. "Internal pyramid structure, contract enforcement, minority investor protection, and firms’ performance: Evidence from emerging economies," Research in International Business and Finance, Elsevier, vol. 52(C).
    6. Waseemullah & Arshad Hasan, 2018. "Business Group Affiliation and Firm Performance—Evidence from Pakistani Listed Firms," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 57(3), pages 351-371.

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    More about this item

    Keywords

    Pakistan; tunneling; business groups; crossshareholding;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General

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