Internal Funds Allocation and the Ownership Structure: Evidence from Korean Business Groups

Byungmo Kim, Kooyul Jung () and In Kim

Review of Quantitative Finance and Accounting, 2005, vol. 25, issue 1, 33-53

Abstract: We examine the relationship between the controlling shareholder’s cash flow rights and the funds transfer in the internal capital market within Korean business groups (chaebols) during the period from 1998 to 2001. We find that the funds allocation in the firms where controlling shareholders have high cash flow rights is better aligned with the investment opportunities and therefore, more efficient than in the firms where they have low cash flow rights. This effect is stronger when they have controlling powers large enough to expropriate minority shareholders. However, during the financial crisis period, funds simply move toward the firms where controlling shareholders have high cash flow rights. The results evidence the tunneling behavior in the internal capital market within a chaebol that the ownership structure distorts the allocation of internal funds in such a way as to benefit the controlling shareholders. Copyright Springer Science+Business Media, Inc. 2005

Keywords: chaebol; ownership structure; internal capital market; funds transfer (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (10)

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DOI: 10.1007/s11156-005-3178-7

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