Governance Transparency and Firm Value: Evidence from Korean Chaebols

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

61 Pages Posted: 27 Sep 2021 Last revised: 11 Nov 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: November 10, 2022

Abstract

We examine Korean business groups' transition from opaque circular-shareholding structures to (relatively simple) pyramidal-shareholding structures between 2011 and 2018. When firms were removed from ownership loops, chaebol families' control and incentive conflicts in them were unaffected. Yet these firms' values declined, especially when controllers had greater incentive conflicts. We show these changes are explained by a resolution of uncertainty about controllers' incentives ("governance transparency'"), which increases earnings responsiveness and enables investors to update priors about the severity of agency issues across group firms. Combined, these two channels result in value increases for some group firms but declines in others.

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 (November 10, 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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