Investment efficiency of firms outside the business group

Yunxiao Liu; Woochan Kim; Taeyoon Sung

doi:10.1016/j.jcorpfin.2021.102105

Investment efficiency of firms outside the business group

Yunxiao Liu, Woochan Kim, Taeyoon Sung

Department of Economics

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

Abstract

Using Korean firms between 1987 and 2010, we show that non-group firms suffer more from investment inefficiency if they operate in industries where group firms belong to larger business groups. We also find that this effect exists mainly during a period characterized by a capital supply shortage and low cash flow pledgeability to investors. Further analyses indicate that the effect is attributable not to human capital constraints, but external financing constraints imposed by business group firms and that causality runs from business group strength to investment inefficiency of non-group firms.

Original language	English
Article number	102105
Journal	Journal of Corporate Finance
Volume	71
DOIs	https://doi.org/10.1016/j.jcorpfin.2021.102105
Publication status	Published - 2021 Dec

Bibliographical note

Funding Information:
We would like to thank the editor, William L. Megginson, and two anonymous referees who kindly reviewed the earlier version of this manuscript and provided valuable suggestions and comments. We also thank Jongsub Lee, Felix Meschke, Aaron Pancost, Sung Won Seo, Jiaping Qiu, and participants at the China International Conference in Finance (2016), the Financial Management Association Annual Meeting (2016), the Conference on Asia-Pacific Financial Markets (2016), the ESG Research Group (2016), the Global Corporate Governance Colloquia (2017), the University of Austin's brown bag seminar (2018), and the Asian Finance Association Annual Meeting (2019) for their comments on earlier drafts. We also thank Korea University Business School and the Asian Institute of Corporate Governance (AICG) for their financial support. This work is also supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2014S1A5A2A01014940), as well as the Shanghai Planning Office of Philosophy and Social Science (2019EGL005). Additionally, note that an earlier version of this study is one of Yunxiao Liu's Ph.D. dissertation chapters.

Funding Information:
We would like to thank the editor, William L. Megginson, and two anonymous referees who kindly reviewed the earlier version of this manuscript and provided valuable suggestions and comments. We also thank Jongsub Lee, Felix Meschke, Aaron Pancost, Sung Won Seo, Jiaping Qiu, and participants at the China International Conference in Finance (2016), the Financial Management Association Annual Meeting (2016), the Conference on Asia-Pacific Financial Markets (2016), the ESG Research Group (2016), the Global Corporate Governance Colloquia (2017), the University of Austin's brown bag seminar (2018), and the Asian Finance Association Annual Meeting (2019) for their comments on earlier drafts. We also thank Korea University Business School and the Asian Institute of Corporate Governance (AICG) for their financial support. This work is also supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea ( NRF-2014S1A5A2A01014940 ), as well as the Shanghai Planning Office of Philosophy and Social Science (2019EGL005). Additionally, note that an earlier version of this study is one of Yunxiao Liu's Ph.D. dissertation chapters.

Publisher Copyright:
© 2021

All Science Journal Classification (ASJC) codes

Business and International Management
Finance
Economics and Econometrics
Strategy and Management

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10.1016/j.jcorpfin.2021.102105

Cite this

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title = "Investment efficiency of firms outside the business group",

abstract = "Using Korean firms between 1987 and 2010, we show that non-group firms suffer more from investment inefficiency if they operate in industries where group firms belong to larger business groups. We also find that this effect exists mainly during a period characterized by a capital supply shortage and low cash flow pledgeability to investors. Further analyses indicate that the effect is attributable not to human capital constraints, but external financing constraints imposed by business group firms and that causality runs from business group strength to investment inefficiency of non-group firms.",

author = "Yunxiao Liu and Woochan Kim and Taeyoon Sung",

note = "Funding Information: We would like to thank the editor, William L. Megginson, and two anonymous referees who kindly reviewed the earlier version of this manuscript and provided valuable suggestions and comments. We also thank Jongsub Lee, Felix Meschke, Aaron Pancost, Sung Won Seo, Jiaping Qiu, and participants at the China International Conference in Finance (2016), the Financial Management Association Annual Meeting (2016), the Conference on Asia-Pacific Financial Markets (2016), the ESG Research Group (2016), the Global Corporate Governance Colloquia (2017), the University of Austin's brown bag seminar (2018), and the Asian Finance Association Annual Meeting (2019) for their comments on earlier drafts. We also thank Korea University Business School and the Asian Institute of Corporate Governance (AICG) for their financial support. This work is also supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2014S1A5A2A01014940), as well as the Shanghai Planning Office of Philosophy and Social Science (2019EGL005). Additionally, note that an earlier version of this study is one of Yunxiao Liu's Ph.D. dissertation chapters. Funding Information: We would like to thank the editor, William L. Megginson, and two anonymous referees who kindly reviewed the earlier version of this manuscript and provided valuable suggestions and comments. We also thank Jongsub Lee, Felix Meschke, Aaron Pancost, Sung Won Seo, Jiaping Qiu, and participants at the China International Conference in Finance (2016), the Financial Management Association Annual Meeting (2016), the Conference on Asia-Pacific Financial Markets (2016), the ESG Research Group (2016), the Global Corporate Governance Colloquia (2017), the University of Austin's brown bag seminar (2018), and the Asian Finance Association Annual Meeting (2019) for their comments on earlier drafts. We also thank Korea University Business School and the Asian Institute of Corporate Governance (AICG) for their financial support. This work is also supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea ( NRF-2014S1A5A2A01014940 ), as well as the Shanghai Planning Office of Philosophy and Social Science (2019EGL005). Additionally, note that an earlier version of this study is one of Yunxiao Liu's Ph.D. dissertation chapters. Publisher Copyright: {\textcopyright} 2021",

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ER -

Investment efficiency of firms outside the business group

Abstract

Bibliographical note

All Science Journal Classification (ASJC) codes

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