Controlling Shareholders’ Value, Long-Run Firm Value and Short-Term Performance

51 Pages Posted: 15 Dec 2014 Last revised: 7 Jun 2017

See all articles by Hyung Cheol Kang

Hyung Cheol Kang

University of Seoul, College of Business Administration

Robert M. Anderson

University of California, Berkeley - Department of Economics

Kyong Shik Eom

CRMR, University of California, Department of Economics

Sang Koo Kang

Korea University - Asia Institute of Corporate Governance (AICG)

Date Written: January 12, 2017

Abstract

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

Kang, Hyung Cheol and Anderson, Robert M. and Eom, Kyong Shik and Kang, Sang Koo, Controlling Shareholders’ Value, Long-Run Firm Value and Short-Term Performance (January 12, 2017). Journal of Corporate Finance 43, (2017), 340-353, Available at SSRN: https://ssrn.com/abstract=2538100 or http://dx.doi.org/10.2139/ssrn.2538100

Hyung Cheol Kang

University of Seoul, College of Business Administration ( email )

163 Seoulsiripdae-ro, Dondaemun-gu
Seoul, 130-743
Korea, Republic of (South Korea)

Robert M. Anderson

University of California, Berkeley - Department of Economics ( email )

530 Evans Hall #3880
Berkeley, CA 94720-3880
United States

Kyong Shik Eom (Contact Author)

CRMR, University of California, Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

Sang Koo Kang

Korea University - Asia Institute of Corporate Governance (AICG) ( email )

1, 5-ga, Anam-dong
Sungbuk-gu
Seoul, 136-701
Korea, Republic of (South Korea)

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