Large Business Groups Research Articles

선택적 CSR과 외부주주의 감시에 대한 연구

Purpose – This study seeks to explore the impact of outside shareholders on CSR, and discuss how outside shareholders interact with corporate ownership structure to affect CSR. Design/Methodology/Approach – Using longitudinal data from 297 publicly listed companies in Korean large business groups, the study examined the direct and interaction effects of outside shareholders and corporate ownership structure on CSR. It focused on the impact of institutional stockholders holding 5% or more of the equity shares and foreign investors on corporate governance. Findings – While institutional investors do not significantly affect CSR, foreign investors have a positive impact and moderate the effects of corporate ownership structure on CSR. They respectively moderate the positive impact of controlling shareholder ownership and the negative impact of control-ownership disparity on CSR. These findings suggest that foreign investors play a role as independent monitors in aligning corporate governance with CSR objectives in large Korean business groups. Research Implications – The findings highlight the possibility of CSR being exploited for private benefits by controlling shareholders without effective corporate governance. This study emphasizes the need for monitoring and balanced oversight in reducing conflicts over CSR, suggesting the importance of outside shareholder engagement in corporate governance. It posits that outside shareholders, particularly foreign investors, are instrumental in fostering responsible corporate governance and CSR practices.

The Role of Non-State Actors in Establishing the Halal Ecosystem in Indonesia

Amidst the global growth of the Muslim population, the need for products or services that comply with sharia law has become unavoidable. As the country with the largest Muslim population in the world, Indonesia has declared itself to become a major player in the global halal industry. This can be seen from the changes made by Indonesia in the last decade, both in policy and governance aspects to form an effective halal sector ecosystem as planned in the Indonesia Islamic Economic Masterplan 2019-2024. However, amid several policies implemented by the government, the role of non-state actors, including but not limited to large industries, business groups and MSMEs, community organizations or NGOs, and product influencers, increases and mainstreaming the halal industry in Indonesia cannot be ruled out. Based on a study of several literature related to the halal industry in Indonesia, researchers see that most of the research on the halal industry in Indonesia focuses on discussing strategy and the government as well as opportunities and challenges for Indonesia in developing the halal industry. Therefore, the study aims to discuss the role of non-state actors in forming the halal industrial ecosystem in Indonesia.

DEVELOPMENT OF BUSINESS GROUPS IN BRAZIL

Objective: This work aims to understand and analyze the development of large business groups, or Business Groups (BG) in Brazil. Methodology: The article is based on a historical analysis focused on the longitudinal analysis of cases from the Brazilian context to uncover the development trajectories of BG. Results: The historical analysis reveals that BGs in Brazil benefited from institutional failures, some of which were generated in times of crisis, and knew how to take advantage of dynamic institutional arrangements during pro-market reforms, such as the use of government incentives to leverage their participation in the privatization process. Consequences of this capacity include the accelerated growth of several groups without the need for dispersion of capital and control, and the successful implementation of strategies such as vertical integration through acquisitions. Originality and value: By showing how BGs emerged and developed in Brazil, taking advantage of opportunities offered by local institutional arrangements, the study presents the mechanisms that explain the persistence of BGs' superior performance over a long period of time.

Control Beyond Ownership: Open‐Book Accounting in Unbalanced Supply Chain Networks*

AbstractOpen‐book accounting is a practice to disclose the full cost structure of suppliers to customers to achieve cost efficiency in supply chains. However, the dominant market power of customers could interfere with this goal in practice. Using unique data on the suppliers of large Korean business groups, we find that open‐book accounting is associated with profit rate regulation by customers. Suppliers' price growth is capped despite the increase in supplied goods. Profit rates of suppliers significantly co‐move in times of low average profitability. Using an exogenous regulatory reform that outlawed coercive open‐book accounting, we find the tendencies significantly reversed post‐reform.

The effect of affiliation with a large business group on trade credit finance: An empirical analysis of chaebol firms in Korea

AbstractWe investigate the effect of affiliation with a large business group on a firm's trade credit policy while controlling for the effects of its financial health and bargaining power in the Korean setting. Group affiliation may influence trade credit finance through the internal capital market mechanism and/or the extra bargaining power mechanism. In our empirical analyses, we focus on identifying the more dominant mechanism for determining trade credit demand (TCD) and supply (TCS). First, we provide a set of empirical findings showing that a firm's affiliation with a large business group increases the firm's TCD but decreases its TCS. These findings support the extra bargaining power mechanism argument. Second, we provide another set of empirical findings that group‐wise financial distress has weak positive impacts on a group affiliate's TCD and TCS. These findings support the internal capital market mechanism argument. Overall, we provide evidence that large business groups in Korea function uniquely in that the extra bargaining power mechanism greatly dominates the internal capital market mechanism when determining a group affiliate's trade credit transactions. We also provide evidence of the internal capital market mechanism functioning when an entire business group faces severe financial difficulties.

Bank crisis resolution in India

PurposeThe academic literature has examined why bank runs happen based on the work of 2022 Nobel Prize-winning economists Diamond and Dybvig. They have found the source of banking/financial crisis in terms of mismatch between liabilities (deposits being short term and savers wanting to short-term access to their money) and assets (long term and illiquid). The Lakshmi Vilas Bank (LVB) crisis intensified when it came under Prompt Corrective Action (PCA) of the Reserve Bank of India (RBI). This situation provides the opportunity to study whether the elements embodied in the theoretical models like Diamond and Dybvig hold true for LVB crisis. This study aims to examine the reasons for the demise of LVB in India using DuPont financial model, peer group analysis and time series structural break in crucial financial parameters.Design/methodology/approachThe study examines the reason for insolvency of LVB using financial ratios, financial models (DuPont), financial distress model (Z-score) and asset-liability management. The study also adopts univariate structural break models using quarterly financial data covering the key financial measures used in the RBI’s PCA framework.FindingsLVB crisis is like Diamond–Dybvig model, in the sense, savers requiring short-term access to their money (liquidity for their deposits) on the information of high non-performing assets, which further deteriorates the illiquid nature of loan portfolio (assets) of banks. The study finds its profit margin (net interest margin and non-interest margin) and managerial efficiency had started deteriorating since 2018. The study finds that LVB’s main weakness lies in its limited credit appraisal ability, its monitoring and weak internal controls. Lending to sensitive sectors (like real estate, capital markets and commodities) and exposure to large business groups also contributed to its weakness. The study also finds huge, elevated asset-liability mismatch, especially in the short-term maturity buckets. Using univariate econometric time series model, the study also confirms financial weakness being evident much earlier than the time when resolution was undertaken by the RBI through PCA.Research limitations/implicationsThe study has implications for analysing and monitoring financial distress of banks. The study also has implications for devising banking regulation and supervision.Originality/valueThe study brings in a perspective of the banking regulations using the application of PCA framework on a listed private sector bank. The authors combine an accounting ratio model and combine risk measures that could identify the incipient risks in a bank. The authors believe this will help in refinement of banking regulations and better monitoring mechanisms.

Network-based measures of systemic risk in Korea

The authors estimate systemic risk in the Korean economy using the econometric measures of commonality and connectedness applied to stock returns. To assess potential systemic risk concerns arising from the high concentration of the economy in large business groups and a few export-oriented sectors, the authors perform three levels of estimation using individual stocks, business groups, and industry returns. The results show that the measures perform well over the study’s sample period by indicating heightened levels of commonality and interconnectedness during crisis periods. In out-of-sample tests, the measures can predict future losses in the stock market during the crises. The authors also provide the recent readings of their measures at the market, chaebol, and industry levels. Although the measures indicate systemic risk is not a major concern in Korea, as they tend to be at the lowest level since 1998, there is an increasing trend in commonality and connectedness since 2017. Samsung and SK exhibit increasing degrees of commonality and connectedness, perhaps because of their heavy dependence on a few major member firms. Commonality in the finance industry has not subsided since the financial crisis, suggesting that systemic risk is still a concern in the banking sector.

Bolsonaro's government and the dismantling of the participative institutions in environmental policy

AbstractIn 2018, Jair Bolsonaro won the Brazilian presidential election with the political support of conservative groups and large business groups that aimed to intensify a neo‐extractivist model of economic growth, leading to severe environmental damage. This article analyzes the first years of this government to understand how conservative neo‐populism associates economic growth strategies with brusque changes regarding the environment. We have identified the main measures adopted in the environmental arena, observing changes in the legislation, management bodies, and spaces available for civil society participation. This analysis demonstrates how Bolsonaro's government destroyed the institutional bases established during Brazilian redemocratization to intensify the neo‐extractivism model and gratify its supporters. Furthermore, we discuss how this dismantling of environmental governance implies grave consequences for the ecosystems, indigenous people, and other traditional populations.

대규모기업집단의 시장가치와 투자행태 간의 관계연구

Purpose – The purpose of this study is to analyze the relationship between large business groups and investment behavior in the IT industry, analyze whether there is a difference in the relationship between the two depending on the level of market evaluation of the firm, and present the implications of the results to the capital market. Design/Methodology/Approach – This study conducts T-Test and OLS regression analysis on 5,214 firm-year data belonging to the Korean IT industry from 2012 to 2020. Findings – The results analyzed in this study are as follows. First, the investment behavior of IT firms differs depending on whether they are a large business group. Those belonging to large business groups are relatively under-invested. Second, there is a difference in the relationship between market value level and investment behavior depending on whether there is a large group of IT firms. Only the non-large group appears to have an over-investment propensity when the market value level is higher. Third, there are differences in investment behavior by market value level (upper/lower) depending on whether or not IT firms are large-scale business groups. Research Implications – The results of this study provide evidence that companies in the IT industry should consider the level of market value when making investment decisions, and are believed to contribute to the respective decision-making of stakeholders and market participants.

The performance of business groups during institutional transition and economic downturn in a developing country

PurposePakistan has experienced financial liberalization with rapid ups and downs in economic growth due to domestic issues during the last 2 decades. Motivated by inconclusive and conflicting time-driven findings about the performance of the business groups, this study examines the performance of business groups in Pakistan for a relatively long period from 2003 to 2018.Design/methodology/approachThe study uses 3,821 firm-year observations from non-financial firms listed on the Pakistan Stock Exchange (PSX). For the estimation, pooled ordinary least squares (OLS) with industry- and year fixed effects and two-step system generalized methods of moments (GMM) are used.FindingsThe study finds that group-affiliated firms outperform independent firms in accounting performance, while underperform in market performance. The outperformance is mainly driven by medium-sized business groups, while underperformance is driven by small and large business groups. Further, the study documents that the underperformance in terms of market performance of firms affiliated with small and large groups is greater before the economic downturn, while outperformance in terms of the accounting measure of firms affiliated with medium-sized groups is greater during the economic downturn. These findings support our time-driven concerns. Overall, the authors' findings are consistent with institutional and transaction cost theories.Practical implicationsBusiness groups are important channels to reduce market inefficiencies. Business groups may enhance the affiliated firms' resources and resistance capacity through active utilization of the internal capital market, specifically when market conditions are not ideal for affiliates. However, effective utilization of internal capital markets depends on group size. Therefore, investors should deliberate on the size of business groups and diversification within business groups.Originality/valueThe authors extend the literature by providing fresh evidence related to the performance of business groups in the Pakistani context while accounting for the role of the size of business groups.

Dark Sides of Intra-Organizational Coopetition. Perspective of Coopetition Within Business Groups

Purpose: Coopetition is a relationship that arises both between independent companies and within complex organizations. It is seen as a success factor generating many benefits for the parties involved. However, at the same time, it is a risky relationship that does have its downsides. The purpose of this study it to identify the main dark sides that appear in coopetitive relationships between subsidiaries within business groups. Design/methodology/approach: This study follows the quantitative approach. A computer-assisted diagnostic questionnaire survey was used and data were collected from 121 parent companies of large business groups listed on the Warsaw Stock Exchange. Findings: The findings prove that coopetition at the intra-organizational level does not generate many negative effects. Those that appear are similar to the negative effects of inter-organizational coopetition. The most important three dark sides of intra-organizational coopetition are: loss of trust, conflicts, and asymmetry in benefits distribution. Research limitations/implications: This study offers a more profound insight into intra-organizational coopetition and its dark side. However, it has some limitations which may indicate directions for further research. The limitations refer to the sample size and its origin as well as the adopted perspective of the parent company. Originality/value: The value of the paper is to draw attention to the dark sides of intra-organizational coopetition. The study provided contribution to the literature on both coopetition and business groups as so far only a few studies have comprehensively dealt with the dark sides of coopetition, especially at the intra-organizational level.

Brand royalty flows within large business groups: The effect of holding company structure and related party transactions committees

AbstractThis study investigates the intragroup flows of brand royalties within large Korean business groups, known as chaebols. We find that member firms pay a greater amount of brand royalties when the business groups they are part of adopt a holding company governance structure, consistent with the bitter denunciation that chaebols transfer wealth from member firms to holding companies over which they have direct control. However, member firms pay a smaller amount of brand royalties when their related‐party transactions (RPTs) are monitored by a designated RPT committee on the board of directors. The results show that monitoring RPTs is effective in mitigating the alleged unethical wealth transfer through excessive brand royalties within large business groups. Our study adds to the literature on RPTs by shedding new light on brand royalty, specifically by illustrating how intragroup brand royalties are determined and charged to member firms, and by introducing the RPT committees as a new internal governance mechanism to discourage abusive RPTs.

An Empirical Study to Examine Drivers of Personal Cloud Computing Usage

Cloud computing is recognized as an important area for information technology (IT) innovation and investment. Many companies are rapidly reorienting their overall IT strategies to include cloud computing. Cloud computing reduces the cost of IT since there is no installing, maintaining, or updating software as well as the elimination of IT emergencies or working after hours. Despite the potential for positive change, there are still other factors to consider before cloud computing can be accepted entirely by the individual, large business, or academic group. Therefore, the main objective of this study is to examine how individuals perceive cloud computing. The study findings reveal several factors which play an important role in their decision whether to adopt cloud computing technology. This study will contribute to the literature by proposing and empirically testing factors that impact the intention to adopt cloud computing.

The role of chaebol in the development of the economy of South Korea

The article describes the specifics of the relationship between the state and big corporations (chaebol). There are analyzed the economic changes of the Republic of Korea, related to the world economy globalization and scientific and technical revolution. Many aspects of this global restructuring of the economy have their own history. The relationship between the state and large chaebol corporations played a significant role in these changes.Special attention in the article is focused on the analysis of the relations system between the state and large enterprises in the Republic of Korea during the period 1960-1980 and the transformation of the relations at the beginning of the 21st century. The influence of geopolitical and economic factors on its functioning is established. The important historical stages of development of the South Korean economy are analyzed. Important factors and preconditions that have contributed to the transformation of South Korea into one of the most developed countries in the world have been investigated. The dynamics of the development of the Korean economy and ways to overcome the crisis situations that arose during the history of the state development were analyzed.There were quite a lot of difficulties in the relations between the state and the chaebols, but the timely response to the changes of the world economy has borne fruit. It should be noted that the state and the chaebol have repeatedly reformed their relations and found consensus. As a result, such corporations as Hyundai, Samsung, LG, Hesong and others moved to the category of multinational companies (TNCs). Large corporations and business groups in different parts of the world differ among themselves in a number of economic, political and socio-cultural features, but the relationship between the state and the chaebols in the Republic of Korea deserves special attention from developing countries.

Can Business Groups Survive Institutional Advancements? Examining the Role of Internal Market for Non-Tradable, Intangible Assets

Business groups are observed everywhere except in the U.S. and U.K.; their global presence is widely acknowledged. The most successful explanation for this preponderance has been based on the relative efficiency of business groups’ internal market vis-à-vis the external market conventionally observed in underdeveloped or emerging economies. Unsurprisingly, this view cannot explain why business groups also prosper in advanced economies where their internal market is thought to no longer match efficient external markets. This study addresses this contradiction by drawing attention to non-tradable, intangible assets and putting forward an institution-free, micro-level explanation. Specifically, we reason that the external market for organizational capabilities is bound to be missing regardless of institutional advancements and economic development due to human beings’ innate cognitive limits and information and behavioral uncertainties, while business groups’ internal markets may overcome these limits via their distinctive organizing mechanism underpinned by group identity, solidarity, mutual trust, shared organizational architecture, and enhanced communicability. In other words, business groups can outperform the external market in coordinating and facilitating exchanges of non-tradable assets and organizational capabilities in particular that are becoming increasingly crucial for successful competition. Using panel data of large business groups in Korea during the periods between 2003 and 2016, we confirm that affiliation with business groups and accessing their internal market enhances technological capability. Thus, this study extends our understanding of business groups beyond the institution-based explanation.

Performance Feedback and Organizational Search Behaviors of Emerging Market Business Group Affiliates

Purpose - The purpose of this paper is to investigate the effect of performance feedback on market vs. technology search behavior of business group affiliates in Korea.
 Design/Methodology/Approach - This study use panel data and the system GMM to analyze the relationship of performance feedback and search behavior, using data from large business group affiliates of 2001-2011.
 Findings - We show that organizational form influences the relationship between performance feedback and search behavior. Contrary to the firms’ usual response to the negative performance feedback, emerging market business group affiliates appear to expedite market search relative to technology search in an effort to rapidly recover their performance vis-à-vis peer affiliates. When the performance is above its aspiration level, the affiliates tend to reserve technology search that accompanies higher risk. We also examine how certain characteristics of business groups interact with the search behavior of its affiliates. We also find that the level of diversification of the business group negatively influences the search behaviors when the performance is below the aspiration level.
 Research Implications - The result of this research implies that the managers of affiliates pay more attention on improving their short term performances, responding more sensitively to internal peer evaluation of within the business group. This result also implies that more diversified business groups induce the more passive searches, since they increase dependency to internal information.

Give Me Five: The Most Important Social Values for Well-Being at Work

Social values are very important for well-being at work. This study investigates which and how social values affect well-being at work and contributes to the growing interest that the issue of quality of life at work has aroused in the areas of human resources management (HRM). Semi-structured interviews were held with 21 active employees of a large Portuguese business group in the environmental sector. The study took place in two parts; first, in December 2018 and then two years after the start of the COVID-19 pandemic, in January 2022. Theories and concepts emerged from the thematic analysis and the subsequent consideration of the literature and emerging conceptual understanding. This qualitative interview study examines what employees expect from work experience about the behavior of leaders and supervisors as representatives of the formal structure of the organization and the behavior of co-workers as an expression of an ethical and positive work environment. The findings show the five social values most important for employee well-being: respect, trust, equity with no discrimination, help and gratitude. The knowledge of the social values with more impact on employee well-being constitutes very important information for human resource management and for the employees, themselves.

The role of parent firms in business groups’ internal capital markets

AbstractUsing a unique dataset of unconsolidated financial statements, we investigate the investment and financing policies of parent firms in South Korea's business groups over the period 2003–2016. Parent firms add to their equity‐stake holdings substantially each year to support affiliated firms’ capital expenditures. Parent firms finance their equity‐stake investment primarily with external funds. These tendencies are more pronounced if parents sit high in the pyramidal chain or are central to controlling other group firms and if parents belong to large business groups. Overall, parent firms prioritize their role as capital raisers and distributors for affiliated firms, and business groups’ internal capital markets are supported by external finance.

The negative hiring rate premium on stock returns in the Korean stock market

This study examines the effect of labor market friction on asset pricing in the Korean stock market. We find a general negative relation between hiring rates and future stock returns, but this relation almost disappears for firms experiencing financial distress or high labor turnover. In addition, we demonstrate that the negative hiring premium is larger across firms with high-skilled workers than those with low-skilled workers and is more prominent for male than for female hiring rates. Finally, we show that firms belonging to large business groups have larger labor adjustment costs due to their unique recruitment process.

The value of official business group affiliation: Evidence from a change in Korean chaebol designation policy

The Korean government doubled the total assets threshold for its large business group (chaebol) designation policy in 2016. Exploiting this policy change, I examine the value implications of a firm's chaebol affiliation. I show that firms affiliated with business groups that had become non-chaebols because of the policy change experienced substantial decreases in value and investment. Further analysis suggests that these results are partly driven by corporate governance features and increased financial frictions. Short-run stock market reactions to announcements regarding the policy change did not predict its long-term value implications.