The Choice of Group Structure: Divide and Rule

Hasung Jang, Hyung Cheol Kang and Kyung Suh Park

No 2005-6, CEI Working Paper Series from Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University

Abstract: This paper concerns the structure of Korean business groups. We investigate the factors that affect a controlling shareholder's decision regarding the structure of his business group and the location of its member firms, using financial and ownership data on conglomerate groups in Korea. We define new measures that represent the levels of vertical and circuitous structures of a group, and the location of member firms in the group. We empirically confirm that controlling shareholders strategically choose the structure of their business groups to secure control over the groups and to seek private benefit of control. The risk diversification and propping incentive of controlling shareholders is also found to affect the decisions.

Pages: 46 pages
Date: 2005-10
Note: September 13, 2005
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Citations: View citations in EconPapers (3)

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