Safer to Steal with a Pen than with a Gun?

When insiders quietly hollow out a firm for their own gain, economists call the practice “tunnelling.” It seldom resembles daylight robbery; instead, value seeps away through friendly‑priced asset purchases, mergers that quietly dilute minority stakes, or executive perquisites dressed up as strategy. Each transaction is small enough to pass muster, yet together they chip away at the company’s true worth, leaving the wider shareholder base to foot the bill. It is often a process of many years.

A quick way to gauge how much tunnelling investors fear is to look at the controlling‑block premium: the extra price someone is willing to pay for shares that come with the keys to the boardroom. If that premium yawns wide, markets are signalling that control confers juicy private benefits—so ordinary shares command a discount. The bigger the gap, the more investors assume insiders are helping themselves behind closed doors.

Enter the discipline of a second listing. When a firm from a light‑touch jurisdiction opts to cross‑list in, for example, New York or London, it instantly confronts tougher disclosure rules, grumpier plaintiff lawyers and a horde of inquisitive analysts. Economists dub this self‑imposed straitjacket “bonding”: by volunteering for stricter oversight, controlling shareholders effectively cap their own ability to tunnel. The reward is a narrower controlling‑block premium and, usually, a richer valuation for the firm as a whole.

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Reference: La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2013). Law and finance after a decade of research. In G. M. Constantinides, M. Harris, & R. M. Stulz (Eds.), Handbook of the Economics of Finance (Vol. 2, pp. 425–491). Elsevier.