Review of Quantitative Finance and Accounting

, Volume 25, Issue 1, pp 33–53

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

Authors

  • Byungmo Kim
    • Graduate School of ManagementKorea Advanced Institute of Science and Technology
    • Graduate School of ManagementKorea Advanced Institute of Science and Technology
  • In Joon Kim
    • Graduate School of ManagementKorea Advanced Institute of Science and Technology
Article

DOI: 10.1007/s11156-005-3178-7

Cite this article as:
Kim, B., Jung, K. & Kim, I.J. Rev Quant Finan Acc (2005) 25: 33. doi:10.1007/s11156-005-3178-7

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.

Key Words

chaebolownership structureinternal capital marketfunds transfer

Copyright information

© Springer Science+Business Media, Inc. 2005