Corporate governance has two types of agency issues with respect to ownership and control of firms. The Type I agency issue is related to conflict of interest between shareholders and firm’s managers (i.e., principal-agent conflict); whereas, the Type II agency issue (i.e., principal-principal conflict) is between controlling (majority) shareholders and minority shareholders. The tunneling and propping in business group firms are examples of Type II agency issue. Tunneling is the process of expropriation or transfer of business resources by controlling shareholders from low cash-flow rights (CFR) firms to high CFR firms in a business group. Tunneling is carried out through certain transactions at the cost of minority shareholders in group firms. Whereas, propping is the opposite process through which resources are provided by controlling shareholders to firms under financial distress in a business group. This thesis examines these Type II agency issues between controlling and minority shareholders of firms related to family business groups of Pakistan. A family business group is a combination of two, or more firms under the control of a particular family. In this regard, the study examines whether tunneling, or propping is carried out in family business group firms, how it occurs and what impact it has on minority shareholders of these firms? The thesis has three major parts: first, this study explores regulatory and corporate environments in Pakistan; develops the pyramid ownership structures of family business groups; and examines the cash flow leverage, cash-flow rights and voting (control) rights of ultimate owners in family business group firms. The study finds that corporations in Pakistan have high degree of ownership concentration. Controlling shareholders own about 87% of firms with equal to or greater than 10% shareholding and 60% of firms with equal to or greater than 20% shareholding. Moreover, most of the businesses in Pakistan are controlled by families. In 62% of business group firms, families own about 20% or more top shareholdings. The study also finds considerable difference in voting, and cash-flow rights in family business group firms, which provides incentives for expropriation of resources. Secondly, the thesis focuses on finding the empirical evidence of tunneling, or propping in family business groups firms of Pakistan by taking a sample of 326 non-financial firms listed on Pakistan Stock Exchange (PSX) for the period 2004-17. The study finds that majority or controlling shareholders expropriate minority shareholders by tunneling or transferring resources from group affiliated firms containing low CFR of majority owners. While measuring the sensitivities of firms to the industry earnings shocks through indirect methodology; the empirical results elucidate that about 31% resources are tunneled from low to high CFR group firms. The study further finds that equity held by directors (representing majority shareholders) has negative relationship with earnings of minority shareholders of low CFR group firms. Thirdly, the thesis examines different categories of four thousand five hundred Related Party Transactions (RPTs) taken place among sample firms during the period 2008-2013. Using the direct methodology, the study categorizes, classifies, describes and analyses the RPTs. The study finds that group affiliated firms extensively involve in RPTs as compared to non-group, foreign and state-owned firms. The controlling shareholders significantly use various RPTs for both, tunneling and propping depending upon the characteristics of firms, and corporate governance. Moreover, the study finds that considerable amount of intra-group loans is outstanding on firms’ financial statements. Besides, direct cash payments, cash receipts, assets sales and trade of goods & services have been observed as major RPTs, and sources of Type II agency issues. The study further finds that market assigns lower multiple of reported earnings for the top other receivable balance firms and vice versa. The study finally finds that firms are less likely to reduce their outstanding other receivables balances despite qualified audit opinions and lower returns. Overall, the results show that business interests of dispersed minority shareholders are xi significantly affected by crafty operations of majority shareholders in family business group firms mainly because of pyramid ownership structure and inadequate enforcement mechanism of corporate governance.These findings have certain implications for regulatory institutions, firm management, shareholders, and researchers.