In this paper, we attempt to make two major contributions to the literature that studies the ownership structure of business conglomerates. First, we introduce the concept of group control motive and empirically show that this motive greatly shapes the controlling-minority ownership structure. Using a two stage least squares (2SLS) framework, we show that controlling families hold greater direct shareholdings in firms that have greater contribution to group control, and alternatively show that firms in which the controlling families hold greater direct shareholdings are made to have greater contribution to group control. Second, we find that the level of disparity between voting and cash flow rights is significantly higher than the levels previously reported in the literature on Korean firms when we include non-public firms and adopt a control concept that is more flexible and closer to reality.
Bibliographical noteFunding Information:
An earlier version of this paper titled “What Determines the Ownership Structure of Business Conglomerates? Evidence from Korea’s Chaebols” appears in the ECGI Finance Working Paper No. 51/2004. Earlier versions of this paper were presented at Seoul National University’s College of Business Administration, Korea University Business School, KDI School of Public Policy and Management, KDI International Conference on Corporate Governance of Group Companies, Korea-America Economic Association (KAEA) Annual Meeting, IMF Research Department Seminar, Korea Securities Association, Seminar on Corporate Governance in Closely Held Firms, 16th Asian Finance Association, Inaugural Asia-Pacific Corporate Governance Conference, and 2005 Financial Management Association Annual Meeting. We thank Warren Park for his editorial work, and Dong-Hyun Ahn, Jin-Wan Cho, Do-Sung Choi, Artyom Durnev, Sung-Wook Joh, Jun-Koo Kang, E. Han Kim, Joonghyuk Kim, Jong-Wha Lee, Cheol Park, Shang-Jin Wei, David Hillier, Steen Thomsen, Joseph P.H. Fan, and Aris Stouraitis for comments on earlier drafts. We thank the Korea Fair Trade Commission and Korea Development Institute for providing the chaebol ownership data, and the KDI School of Public Policy and Management for financial support.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics