Although strong empirical evidence suggests that the entrepreneurs in countries with weak legal systems often engage in "tunneling" (expropriating funds that rightfully belong to minority shareholders), the same entrepreneurs may prop up firms using their private resources. Anecdotal evidence...

In countries with weak legal systems, there is a great deal of tunnelling by the entrepreneurs who control publicly traded firms. However, under some conditions entrepreneurs prop up their firms, i.e., they use their private funds to benefit minority shareholders. We provide evidence and a model...