Journal of Corporate Finance
Volume 41, December 2016, Pages 23–42
 

Sunwoo Hwang a, Woochan Kim b,
a Kenan-Flagler Business School, University of North Carolina at Chapel Hill, NC 27599, USA
b Korea University Business School, Seoul 02841, Republic of Korea
http://www.sciencedirect.com/science/article/pii/S0929119916301092

Abstract

This study investigates how related-party sales are used as a means to financially support the firms in which heirs become major shareholders and allow them to strengthen control over other firms in the group through pyramiding. From a universe of Korean chaebol firms during 2000–2011, we identify a subset of firms where heirs become major shareholders (treatment group) and compare them against their propensity-score-matched firms (control group) before and after the ownership change. A series of difference-in-differences tests with firm fixed effects reveal that treatment group firms experience greater related-party sales, benefit from them in terms of earnings, and gain importance in controlling other firms in the group. However, we do not find these results when non-heirs (e.g., controlling shareholders and other relatives) become major shareholders.

Keywords

•Family firm;
•Business group;
•Chaebol;
•Succession;
•Related-party transaction;
•Control-enhancement