Abstract
We show that during the 1997 Korean financial crisis, chaebol firms with higher ownership concentration by unaffiliated investors experience a smaller reduction in their share value. Firms with higher disclosure quality and alternative sources of external financing also suffer less. In contrast, chaebol firms with concentrated ownership by controlling family shareholders experience a larger drop in the value of their equity. Firms in which the controlling shareholders' voting rights exceed their cash flow rights, borrow more from the main banks, and are highly diversified also have lower returns. Finally, we find that downsizing (diversifying expansionary) actions during the crisis have a positive (negative) effect on the value of chaebol firms. Our results suggest that change in firm value during such a crisis is a function of firm-level differences in corporate governance measures and owner-manager incentives.
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