Abstract
This study examines whether related-party transactions (RPTs) impact the value of firms’ cash holdings. Using a 2011–2018 sample of Korean public firms, we find that greater RPTs lead to lower cash holdings value. In particular, this decline is more pronounced in Korean chaebol firms than in non-chaebol firms. Our findings suggest that a unique and complex corporate governance structure of chaebol firms makes it difficult for outside investors to monitor firms’ internal cash management decisions, resulting in a negative valuation of cash holdings. This study contributes to the extant literature by providing additional evidence that RPTs in chaebol firms with severe agency problems may lower the value of cash holdings.
Highlights
Our study focuses on Korean firms because Korean chaebols have a unique business group structure, such as pyramidal ownership structure and cross-shareholding among firms belonging to a large business group [8,9]
Using Korean firm data, this study suggests that the effect of related-party transactions (RPTs) on the value of cash holdings is likely to be more pronounced in unique corporate governance settings such as chaebol firms
This study examines whether RPTs affect the value of cash holdings in the Korean stock market setting
Summary
Citation: Choi, H.; Cho, J.Related-Party Transactions, ChaebolAffiliations, and the Value of CashHoldings. Sustainability 2021, 13, 699.https://doi.org/10.3390/su13020699Received: 12 December 2020Accepted: 10 January 2021Published: 13 January 2021Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations.This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/
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