Governance of Tunnelling in Developing Countries: Evidence from Bangladesh

Abstract

Tunnelling (also known as self-dealing transactions) are non-arm’s length transactions with related parties of controlling shareholders for private benefit 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 are in developed countries with the few exceptions of studies in China, India and Mexico. Using Oliver Williamson’s Market and Hierarchy model this paper theoretically analyses the suitability of the governance of tunnelling in Bangladesh. Interviewing directors, independent directors and audit committee members, this study identifies the limitation and factors that affect the implementation and enforcement of current governance requirements for restricting tunnelling practices in Bangladesh.