Brand Royalty Flows within Large Business Groups: The Effect of Holding Company Structure and Related Party Transactions Committees

KAIST College of Business Working Paper Series No. 2021-001

Journal of Business Finance and Accounting

62 Pages Posted: 15 Jan 2021 Last revised: 10 Sep 2023

See all articles by Seunghyun Cho

Seunghyun Cho

KAIST College of Business

Jinhan Pae

Korea University Business School (KUBS)

Choong-Yuel Yoo

KAIST College of Business

Date Written: August 30, 2022

Abstract

This study investigates the intragroup flows of brand royalties within large Korean business groups, known as chaebols. We find that member firms pay a greater amount of brand royalties when the business groups they are part of adopt a holding company governance structure, consistent with the bitter denunciation that chaebols transfer wealth from member firms to holding companies over which they have direct control. However, member firms pay a smaller amount of brand royalties when their related-party transactions (RPTs) are monitored by a designated RPT committee on the board of directors. The results show that monitoring RPTs is effective in mitigating the alleged unethical wealth transfer through excessive brand royalties within large business groups. Our study adds to the literature on RPTs by shedding new light on brand royalty, specifically by illustrating how intragroup brand royalties are determined and charged to member firms, and by introducing the RPT committees as a new internal governance mechanism to discourage abusive RPTs.

Keywords: Brand royalty; business group; chaebol; holding company; related party transactions committees.

JEL Classification: G38, G3, G, L20, L2, L, O53, O5, G3, G, M48, M4, M

Suggested Citation

Cho, Seunghyun and Pae, Jinhan and Yoo, Choong-Yuel, Brand Royalty Flows within Large Business Groups: The Effect of Holding Company Structure and Related Party Transactions Committees (August 30, 2022). KAIST College of Business Working Paper Series No. 2021-001, Journal of Business Finance and Accounting, Available at SSRN: https://ssrn.com/abstract=3766695 or http://dx.doi.org/10.2139/ssrn.3766695

Seunghyun Cho

KAIST College of Business ( email )

85 Hoegiro, Dongdaemun-gu
Seoul 02455
Korea, Republic of (South Korea)

Jinhan Pae

Korea University Business School (KUBS) ( email )

Anam-Dong, Seongbuk-Gu
Seoul 136-701, 136701
Korea

Choong-Yuel Yoo (Contact Author)

KAIST College of Business ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul, 02455
Korea, Republic of (South Korea)

HOME PAGE: http://www.business.kaist.edu/faculty/cyoo

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