Governance Transparency and Firm Value: Evidence from Korean Chaebols

Harvard Business School Accounting & Management Unit Working Paper No. 22-012

52 Pages Posted: 27 Sep 2021 Last revised: 10 Jan 2022

See all articles by Akash Chattopadhyay

Akash Chattopadhyay

University of Toronto - Rotman School of Management

Sa-Pyung Sean Shin

National University of Singapore (NUS) - NUS Business School; affiliation not provided to SSRN

Charles C. Y. Wang

Harvard Business School (HBS)

Date Written: January 7, 2022

Abstract

We examine Korean business groups' transition from circular-shareholding structures to (relatively simple) pyramidal-shareholding structures between 2011 and 2018. When firms were removed from ownership loops, chaebol families' control or incentive conflicts in them were unaffected; yet their values declined in accordance with families' incentive conflicts. Non-loop group firms' values increased (declined) when little (significant) agency issues that were difficult to identify under circular-shareholding structures existed. As families' incentive conflicts become clearer ("governance transparency"), earnings responsiveness increases but, by enabling investors to update priors about the relative severity of agency issues across group firms, firm values can increase or decrease.

Keywords: Business group; Cross shareholding; Circular shareholding; Pyramidal ownership; Governance transparency; Ownership transparency; Valuation; Earnings response coefficient

JEL Classification: G18, G34, G38, G41, L51, M14, M52

Suggested Citation

Chattopadhyay, Akash and Shin, Sa-Pyung Sean and Wang, Charles C. Y., Governance Transparency and Firm Value: Evidence from Korean Chaebols (January 7, 2022). Harvard Business School Accounting & Management Unit Working Paper No. 22-012, Available at SSRN: https://ssrn.com/abstract=3919263 or http://dx.doi.org/10.2139/ssrn.3919263

Akash Chattopadhyay

University of Toronto - Rotman School of Management ( email )

105 St George Street
Toronto, Ontario M5S 3G8
Canada

Sa-Pyung Sean Shin

National University of Singapore (NUS) - NUS Business School ( email )

1 Business Link
Singapore, 117592
Singapore

affiliation not provided to SSRN

Charles C. Y. Wang (Contact Author)

Harvard Business School (HBS) ( email )

Soldiers Field
Boston, MA 02163
United States

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