Controlling Shareholders’ Value, Long-Run Firm Value and Short-Term Performance
51 Pages Posted: 15 Dec 2014 Last revised: 7 Jun 2017
Date Written: January 12, 2017
We propose a new determinant of firm value within a business group: controlling shareholders’ value (CSV), the value of controlling shareholders’ stake in an affiliate divided by their stake in all affiliates. We posit that controlling shareholders focus attention on the high-CSV affiliates. Using data on Korean family-controlled business groups, we find that CSV has greater explanatory power for firm performance than traditional cash flow rights (CFR). We also find that, among affiliates with non-family CEOs, higher CSV is associated with higher Tobin’s Q and lower EBITDA, indicating that controlling shareholders and non-family CEO have successfully addressed their principal-agent problem.
Keywords: Controlling shareholders’ value (CSV), Business group, Cash flow rights (CFR), Ownership structure, Chaebol, Limited attention
JEL Classification: G32, G34, L22
Suggested Citation: Suggested Citation