Internal Capital Markets in Business Groups: Evidence from the Asian Financial Crisis

72 Pages Posted: 18 Sep 2011 Last revised: 13 Feb 2015

See all articles by Heitor Almeida

Heitor Almeida

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Chang Soo Kim

Yonsei University - Department of Medical Engineering

Hwanki Brian Kim

Baylor University - Department of Finance, Insurance & Real Estate

Multiple version iconThere are 2 versions of this paper

Date Written: February 11, 2014

Abstract

This paper examines capital reallocation among firms in Korean business groups (chaebol) in the aftermath of the 1997 Asian financial crisis, and the consequences of this capital reallocation for investment and performance of chaebol firms. We show that chaebol transferred cash from low growth to high growth member firms after the crisis, using cross-firm equity investments. This capital reallocation allowed chaebol firms with greater investment opportunities to invest significantly more than control firms in the aftermath of the crisis. Chaebol firms with greater investment opportunities also showed higher profitability and lower declines in valuation than control firms following the Asian crisis. Our results suggest that Korean chaebol used their internal capital markets to mitigate the negative effects of the Asian crisis on their investment and performance.

Keywords: Chaebol, corporate investment, difference-in-differences matching estimator, family firms, capital reallocation

JEL Classification: G32, G34

Suggested Citation

Almeida, Heitor and Kim, Chang Soo and Kim, Hwanki Brian, Internal Capital Markets in Business Groups: Evidence from the Asian Financial Crisis (February 11, 2014). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1928179 or http://dx.doi.org/10.2139/ssrn.1928179

Heitor Almeida

University of Illinois at Urbana-Champaign ( email )

515 East Gregory Drive
4037 BIF
Champaign, IL 61820
United States
217-3332704 (Phone)

HOME PAGE: http://www.business.illinois.edu/FacultyProfile/faculty_profile.aspx?ID=11357

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Chang Soo Kim (Contact Author)

Yonsei University - Department of Medical Engineering ( email )

Korea, Republic of (South Korea)
033-760-2331 (Phone)
033-760-2918 (Fax)

HOME PAGE: http://www.yonseibiz.net/w_page/fix_ct/bbs/board.php?bo_table=fnr_db1

Hwanki Brian Kim

Baylor University - Department of Finance, Insurance & Real Estate ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States

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