This paper demonstrates that group-affiliated firms have financial attributes that are different from those of stand-alone firms and suggests that these differences are consistent with ex-post consequences of receiving equity investment (EI) in business groups. Therefore, intra-group EI serves as an important driver of these differences. The paper verifies the results by considering the case of Korea's EI regulation. EI recipients invest more, but are less profitable than firms receiving no such investment. Group-affiliated firms reduce their dividend payout and short-term debt after receiving EI. Finally, recipients increase capital investment when they perceive their EI to be persistent, and those receiving massive EI use funds differently from those receiving normal EI. The results suggest that massive EI may involve ownership-related intentions, not financial support.
Bibliographical noteFunding Information:
Correspondence Address: Doyeon Kim, School of Economics and Finance, Yeungnam University, Gyeongsan, Gyeongbuk 712-749, Republic of Korea. Email: email@example.com This paper has been developed from an earlier version under the title of ‘‘Equity Investment and Recipient’ Financial Decision in Business Group.’’ Doyeon Kim gratefully acknowledges support from the Yeungnam University research grant.
All Science Journal Classification (ASJC) codes
- Business and International Management
- Economics, Econometrics and Finance(all)
- Political Science and International Relations