Emerging Markets Finance and Trade
Oct 31, 2016
 

Hee Sub Byun, Ji Hye Lee & Kyung Suh Park

http://dx.doi.org/10.1080/1540496X.2016.1240675

Abstract
This study investigates the effect of product market competition on the ownership choice of controlling shareholders in the Korean business groups known as chaebols. We find that member firms in more competitive markets have less disparity between the control and cash flow rights of controlling shareholders. The adjustment in ownership due to product market competition is implemented mainly through an adjustment in the ownership of affiliates rather than in the direct ownership of controlling shareholders. The disciplinary effect of product market competition is observed only in member firms with lower market power in their own industries. The result implies that product market competition works as a disciplinary mechanism that reduces the incentive of chaebols’ controlling shareholders to pursue the private benefits of control.

Keywords:
Business group, controlling shareholder, disparity, private benefit of control, product market competition