Financial Policies between Chaebol and Non-Chaebol Firms

Abstract

In this research, we investigate whether chaebol affiliations have a different financial policy compared with non-chaebol firms, in debt level, cash-holding level, and investment decision policy. Our results indicate that 8 variables out of 10 show significant differences in terms of the directions and magnitudes of the coefficients of independent variables between chaebol and non-chaebol firms for debt level policy. For the cash-holding policy, 3 variables show differences; and for investment policy, only 1 variable shows a significant difference between chaebol and non-chaebol firms. In this paper, we use regression models and the T-test to confirm the existence of differences in financial polices, mainly between chaebol and non-chaebol firms. When comparing the coefficients from two different regression estimators, by using the T-test, we find more compelling evidence that chaebol and non-chaebol firms have different financial policies than prior research. This is because, by using the T-test, we can obtain more solid evidence of whether firms’ financial policies are influenced by firms’ chaebol group membership; and by using this method, we often find inconsistent results with previous research. We believe that a lot of previous research should be revised using our method, as our T-test often disagrees with the results found by previous research that only use simple regression estimators.