Related-Party Trades in Vertical Integration

38 Pages Posted: 14 Dec 2021

See all articles by YongKi Hong

YongKi Hong

University of California, Los Angeles

Date Written: November 23, 2021

Abstract

Despite the importance of intra-firm trades in theories of the firm, an empirical literature using proxy measures has documented surprisingly little such trade. I revisit this conclusion using economy-wide firm-level data from South Korea, where related-party trades are directly observable. I show that the true prevalence and volume of the trades are much greater than previous measures indicate. Past proxy measures that rely heavily on input-output tables appear to dramatically underestimate the trades, capturing only 17.6% of related parties that trade and 32.6% of their sales volume. I propose alternative methods to infer trade within ownership networks that show substantially improved performances compared to the existing proxies.

Keywords: Related-party trade, intra-firm trade, vertical integration

JEL Classification: G32, G34, L22, L60, M11, C53

Suggested Citation

Hong, YongKi, Related-Party Trades in Vertical Integration (November 23, 2021). Available at SSRN: https://ssrn.com/abstract=3983336 or http://dx.doi.org/10.2139/ssrn.3983336

YongKi Hong (Contact Author)

University of California, Los Angeles ( email )

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