Tunneling or Value Added? Evidence from Mergers by Korean Business Groups

Posted: 2 Aug 2003

See all articles by Kee-Hong Bae

Kee-Hong Bae

York University - Schulich School of Business

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School

Jin-Mo Kim

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Abstract

We examine whether firms belonging to Korean business groups (chaebols) benefit from acquisitions they make or whether such acquisitions provide a way for controlling shareholders to increase their wealth by increasing the value of other group firms (tunneling). We find that when a chaebol-affiliated firm makes an acquisition, its stock price on average falls. While minority shareholders of a chaebol-affiliated firm making an acquisition lose, the controlling shareholder of that firm on average benefits because the acquisition enhances the value of other firms in the group. This evidence is consistent with the tunneling hypothesis.

Suggested Citation

Bae, Kee-Hong and Kang, Jun-Koo and Kim, Jin-Mo, Tunneling or Value Added? Evidence from Mergers by Korean Business Groups. Journal of Finance, Vol. 57, pp. 2695-2740, 2002. Available at SSRN: https://ssrn.com/abstract=369716

Kee-Hong Bae (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School ( email )

Nanyang Avenue, Block S3-01b-54
Singapore, 639798
Singapore
(+65) 6790-5662 (Phone)
(+65) 6791-3697 (Fax)

HOME PAGE: http://www.nbs.ntu.edu.sg/nbs_corporate/divisions/bnf/index.asp

Jin-Mo Kim

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

Janice H. Levin Bldg., Room 121
94 Rockafeller Road
Piscataway, NJ 08854-8054
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,625
PlumX Metrics