When heirs become major shareholders: Evidence on pyramiding financed by related-party sales

Sunwoo Hwang and Woochan Kim ()

Journal of Corporate Finance, 2016, vol. 41, issue C, 23-42

Abstract: This study investigates how related-party sales are used as a means to financially support the firms in which heirs become major shareholders and allow them to strengthen control over other firms in the group through pyramiding. From a universe of Korean chaebol firms during 2000–2011, we identify a subset of firms where heirs become major shareholders (treatment group) and compare them against their propensity-score-matched firms (control group) before and after the ownership change. A series of difference-in-differences tests with firm fixed effects reveal that treatment group firms experience greater related-party sales, benefit from them in terms of earnings, and gain importance in controlling other firms in the group. However, we do not find these results when non-heirs (e.g., controlling shareholders and other relatives) become major shareholders.

Keywords: Family firm; Business group; Chaebol; Succession; Related-party transaction; Control-enhancement (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:41:y:2016:i:c:p:23-42

DOI: 10.1016/j.jcorpfin.2016.08.013

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