Tunneling by Related†party Transactions: Evidence from Korean Conglomerates

Sungbin Cho and Kyung†Mook Lim

Asian Economic Journal, 2018, vol. 32, issue 2, 147-164

Abstract: This study analyzes tunneling created by related†party transactions (RPT) in relation to controlling shareholders' cash†flow rights. Results of the analysis confirm a statistically significant relation between cash†flow rights and the earning rates of major controlling shareholders, indicating a transfer of wealth through RPT among affiliates of business groups. Furthermore, it is found that more sales made through RPT out of the total sales result in a higher earning rate, which implies that RPT affect the differences in earning rates among affiliates.

Date: 2018
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