How does law affect finance? An examination of equity tunneling in Bulgaria

Vladimir Atanasov*, Bernard Black, Conrad Ciccotello, Stanley Gyoshev

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

85 Scopus citations


We model and test the mechanisms through which law affects tunneling and tunneling affects firm valuation. In 2002, Bulgaria adopted legal changes which limit equity tunneling through dilutive equity offerings and freezeouts. Following the changes, minority shareholders participate equally in equity offerings, where before they suffered severe dilution; freezeout offer price ratios quadruple; and Tobin's q rises sharply for firms at high risk of tunneling. The paper shows the importance of legal rules in limiting equity tunneling, the role of equity tunneling risk as a factor in determining equity prices, and substitution by controlling shareholders between different forms of tunneling.

Original languageEnglish (US)
Pages (from-to)155-173
Number of pages19
JournalJournal of Financial Economics
Issue number1
StatePublished - Apr 2010


  • Controlling shareholder
  • Dilution
  • Emerging markets
  • Equity tunneling
  • Freezeout
  • Preemptive rights
  • Securities law

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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