Ownership-control Disparity Research Articles

Differential Value of Cash Holdings According to Ownership–Control Disparity

Differential Value of Cash Holdings According to Ownership–Control Disparity

소유지배괴리도와 투자효율성

While much research has continued to concentrate on finding the determinants of investment efficiency, it has been neglected that investment efficiency may depend on agency problems between controlling shareholders and external stakeholders caused by ownership-control disparity. The purpose of this study is to provide stakeholders with evidence that information asymmetries caused by ownership-control disparity can depreciate investment efficiency by analyzing the relationship between ownership-control disparity and investment efficiency.
 From analyses, there is a significant negative relationship between ownership-control disparity and investment efficiency, with this relationship remained unchanged after controlling endogeneity between them. These results show that as ownership-control disparity increases, agency costs produced by deepened information asymmetries lower investment efficiency. Moreover, as ownership-control disparity increases, over investment is not asymmetry to under investment and that is more dominant than under investment. On the other hand, at the low and high levels of ownership-control disparity, although the relationship between ownership-control disparity and investment efficiency are insignificant statistically, this relationship is negative. At the middle level of ownership-control disparity, it appears a significant positive relationship between them, suggesting that there is potential non-linear relationship between them.

The end of rent sharing: corporate governance reforms in South Korea

ABSTRACT As the imprisonment of Samsung’s heir, JY Lee, clearly indicates, South Korean conglomerate groups (chaebol) face enormous difficulties in protecting their private property via father-son inheritance of the entire group. High party polarization (i.e. intense competition between ideologically divided political parties) within Korean democracy has continuously threatened the chaebols’ private property and family succession system, criticizing the unusually high economic concentration enjoyed by the top ten chaebols. Using the rent sharing view (RSV) of corporate governance, this contribution to the special issue examines key variables in the evolution of Korean corporate governance: the impact of the traditional corporate governance (TCG) and the new holding company system (HCS) on intragroup trading (IGT), non-dividend incomes hoarded by owning families, ownership-control disparity (OCD) and family succession. We find that private property protection through rent sharing continues to overshadow chaebols’ choices about their future corporate governance structure, while the new HCS fails to curb IGT, non-dividend incomes, OCD and family succession.

A Study of the Relationship between Corporate Governance and Non-business Real Estate

Corporate non-business real estate can be used for the private benefits of controlling shareholders, but is also likely to enhance shareholder wealth. This study explores the impact of corporate governance to address this contradiction, particularly the ownership-control disparity on non-business real estate. We further examine the moderating effect of foreign blockholders on the relationship, then conduct additional analyses on the relationship between non-business real estate and firm value. The results are as follows. First, the disparity has a consistently positive relationship with non-business real estate, which implies that corporate non-business real estate can be utilized for expropriation for the benefit of controlling shareholders. Second, the relationship between the disparity and non-business real estate is mitigated by foreign blockholders. Third, we find that non-business real estate has a negative relationship with firm value. This result implicates the inefficiency of non-business real estate and the possibility of agency problem. Forth, investment in non-business real estate is likely to decrease firm value, compared with investment in core business. This study revisits and extends corporate governance research in terms of non-business real estate by identifying the presence of agency problems and monitoring effects of outside blockholders.

The Relationship between Ownership Control Disparity and Firm Value: Empirical Evidence from High-Technology Firms in Korea

The Relationship between Ownership Control Disparity and Firm Value: Empirical Evidence from High-Technology Firms in Korea

지배주주의 소유-지배 괴리가 IPO 성과에 미치는 영향

지배주주의 소유-지배 괴리가 IPO 성과에 미치는 영향

Influence of Family Ownership on Earnings Quality

Manuscript type: Research paper Research aims: This paper investigates how family ownership affects firm’s earnings quality. The focus is on firms listed on the Korean Stock Exchange (KSE). Design/Methodology/Approach: This study uses panel data to classify family ownership into two categories: pure family ownership and ownership-control disparity (wedge) where wedge is further divided into 1) wedge ratio and 2) wedge multiplier. In addressing the category of ownership-control disparity, it is important to measure how much control rights are greater than ownership rights. Therefore, this study employs the wedge multiplier to overcome the limitation of not separating management control and ownership. Firms’ earnings quality is tested by using four proxies proposed by Jonas and Blanchet (2000): 1) persistence, 2) value relevance, 3) conservatism, and 4) accruals quality. Research findings: This research finds family ownership to be positively associated with earnings quality, value-relevance and accruals quality. However, ownership-control disparity does not reduce the earnings quality. This finding is not consistent with previous studies. Thus, it is deduced that the controlling family shareholders of the chaebol firms have a dominant influence on firms which they invested in by using affiliated ownership. Significant ownership-control disparity is prevalent in chaebol firms, resulting in low earnings quality. Theoretical contribution/Originality: Family ownership is predominant in a number of countries, especially in East-Asian countries. In that regard, this study is important. It contributes to the understanding of family ownerships and firms’ earnings quality not only for the Korean contexts, but also for other East Asian countries. Research limitation/Implications: The four proxies of earnings quality used in this study do not necessarily reflect all aspects of the earnings quality. In this study, the results between family ownership and earnings quality are mixed. The results based on the association between corporate governance and earnings quality could be attributed to the way earnings quality is defined. The management of the chaebol firms or large business groups should try to improve transparency and the quality of their financial reporting.Keywords: Chaebol, Earnings Quality, Family Ownership, Panel Data, Wedge JEL Classification: G32, G34, M41

소유지배괴리도와 사외이사 보상 중요성 간의 관련성 : 기회주의적 목적의 조절효과를 중심으로

선행연구들은 사외이사에 지급되는 많은 보상이 그들의 감시활동을 촉발시키는 촉매제 역할을 하는지 아니면 많은 보상을 유지하기 위해 경영자의 기회주의적 행동을 용인하는 유인이 되는지에 대해 명확한 근거를 제시하지 못하고 있다. 또한 단순한 사외이사 보상수준만으로는 지배주주가 사외이사의 역할에 대해 어떻게 인식하는지를 알 수 없다는 한계점이 있었다. 본 연구의 목적은 (1) 소유지배괴리도와 이사회 내 사외이사 보상 중요성 간의 관련성을 검증하고, (2) 이러한 관련성이 기회주의적 목적을 갖고 있는 기업에서 어떻게 달라지는지를 분석하였다. 본 연구는 2009년부터 2017년까지 소유지배괴리도를 산정할 수 있는 기업-연 1,286개에 대해 분석하였다.<BR> 본 연구결과는 소유지배괴리도와 이사회 내 사외이사 보상 중요성 간에 양(+)의 관련성이 존재함을 보여주었고, 이러한 관련성은 양(+)의 재량적 발생액을 갖는 기업에서 음(-)의 관련성으로 전환되는 것을 보여주었다. 이러한 결과는 소유와 지배괴리도가 커질수록 지배주주가 이해관계자들의 우려를 불식시키기 위해 사외이사에게 감시활동을 촉발시키는 많은 보상을 지불하지만, 기회주의적 목적을 갖게 되면 감시활동을 회피하기 위해 낮은 보상을 지불하는 것으로 해석되었다. 따라서 소유지배괴리도는 반드시 대리인 비용을 증가시키기 보다는 지배주주가 어떠한 목적을 갖고 있느냐에 따라 달라질 수 있음을 보여준다. 이러한 결과는 감사인 독립성이 훼손될 환경에서도 일관된 결과들이 나타났다.<BR> 본 연구결과는 기업의 이해관계자들에게 기업경영에 대한 소유지배괴리도의 영향이 지배주주의 의도에 의해 달라질 수 있다는 새로운 근거를 제시하였다.

The effect of ownership-control disparity on the Chinese firm’s real activity earnings management

Purpose This paper aims to investigate the impact of the separation between control and cash flow rights (control-ownership disparity) on the earnings management practices of Chinese firms. The notable features of Chinese firms are those of concentrated ownership and the severe disparity that exists between the control and cash flow rights of controlling shareholders. Design/methodology/approach This study measures the level of Chinese firms’ earnings management by adopting two different methods of measurement: accrual-based earnings management (AEM) and real activity earnings management (REM). The authors also consider the possible trade-off effects between these two types of measurements. The data set in this study encompasses over 2,000 Chinese firms, using data from 2003 to 2015. Findings The results indicate that controlling shareholders are more likely to engage in AEM as their cash flow rights are more concentrated, while they are less likely to use REM as the disparity of control-cash flow rights increases. Further, this inverse relationship between REM and control-cash flow rights disparity becomes more pronounced in the case of a low cash flow rights group. As REM generally causes distortions in firms’ operations, it is possible that the controlling shareholders are more likely to constrain the use of REM as the disparity is perceived to grow. This result may indicate a reduced agency problem between controlling and minority shareholders due to the developing and/or existing ownership dispersions, which are mainly driven by recent reforms applied to Chinese capital markets. However, we do not entirely exclude the possibility of other types of expropriations by the controlling shareholders. It appears that the controlling shareholders are still able to exert a significant level of control, even following a substantial ownership dispersion, and they may seek alternative expropriation methods, including but not limited to intercorporate loan or related party transactions as the disparity of control-cash flow rights increases. Originality/value Although the Chinese economy is experiencing a series of reforms to infuse market forces into capital markets, little has been known about the effects of ownership-control disparity in Chinese firms. Our findings highlight the importance of the country specific context in this vein of research.

The Effect of Ownership-Control Disparity on the Appointment of Outside Directors

The Effect of Ownership-Control Disparity on the Appointment of Outside Directors

소유지배괴리도와 감사보수 간의 관련성에 대한 감사위원회 특성의 승수효과

소유지배괴리도와 감사보수 간의 관련성에 대한 감사위원회 특성의 승수효과

The Multiplier Effects of Audit Committee Characteristics on the Relationship between Ownership-Control Disparity and Audit Fees

The Multiplier Effects of Audit Committee Characteristics on the Relationship between Ownership-Control Disparity and Audit Fees

Product Market Competition, Ownership-Control Disparity, and Board Characteristics

본 연구는 지배주주의 사적효용추구 유인을 대리하는 소유-지배 괴리도가 이사회 특성에 미치는 영향력이 상품시장에서의 경쟁 위협에 의해 어떻게 달라지는가를 분석한다. 실증분석결과, 소유-지배 괴리도의 상승은 이사회의 감시기능을 약화시키는 것으로 관찰되어 기존 연구의 주장을 재차 확인할 수 있었다. 하지만 이러한 영향력은 비경쟁적인 상품시장에서 주로 강하게 관찰되었으며, 경쟁적인 상품시장에서는 사라지거나 약화되는 것으로 나타났다. 이는 상품시장에서의 경쟁 위협이 사적효용추구 행태를 사전에 규율함에 따라, 지배주주가 과도한 통제권을 바탕으로 이사회의 감시기능을 약화시킬 유인을 감소시키기 때문으로 해석이 가능하다. 이러한 관계는 내생성 문제를 완화시킨 경우, 대안적인 상품시장에서의 경쟁 지수를 활용한 경우, 이사회의 감시기능에 대한 보다 구체적이며 포괄적인 지수를 사용한 경우에도 유사하게 관찰되어 강건성을 확인할 수 있었다. 한편, 추가적으로 상품시장에서의 경쟁과 소유-지배 괴리도의 상호관계가 경영권 방어 조항채택 여부에 미치는 영향을 분석한 결과에서도 동일한 효과가 관찰되었다.BR 본 연구의 결과는 국내 자본시장에서 상품시장에서의 경쟁 위협이 지배주주의 사적효용 추구 유인에 기인한 이사회의 감시기능을 약화시키려는 행태를 사전에 규율하는 효과적인 통제장치로 이해될 수 있음을 시사한다. 따라서 본 연구는 대리인문제의 규율이 주로 내부 지배구조에 의존하는 국내 자본시장에서 어떤 방식을 통해 효율적으로 이사회의 감시기능을 제고시킬 수 있는지에 대한 시사점을 제시할 것으로 판단된다.

Why is the Inter-firm Credit Market in Korea Special? An Agency View of Trade Credit Use by Chaebols

We study inter-firm credit (also known as trade credit (TC) or the delayed payment a supplier allows its downstream customer on a product sale) with an emphasis on its unique features in Korea. It is the prominence of chaebol-affiliated firms in the Korean economy that makes Korea unique because chaebol firms are linked together by common ownership and thus distort the assumption common to all theories of TC that the input supplier is independent from its customer. We find several aspects of TC use by chaebols. First, viewed as input purchasers, these firms take more TC (the chaebol effect). The amount of TC taken is positively related to purchases from other chaebol affiliates (the affiliate effect), and with the degree of the chairman's ownership-control disparity (the ownership multiplier effect). Also TC as proportion of short-term debt increases significantly after profit growth (the profit effect). Furthermore, chaebol members give less TC although this is strongly correlated with transactions with affiliates. We suggest a unifying interpretation of these patterns based on agency cost: TC, by substituting for external financing and reducing monitoring by outsiders, presents controlling minority owners the opportunity to misuse their greater control for their own benefit.

A Study on the Effects of Ownership-Control Disparity on Board’s Social Independence

A Study on the Effects of Ownership-Control Disparity on Board’s Social Independence

벤처캐피탈 투자가 신규상장기업의 투명성 제고에 미치는 영향

벤처캐피탈은 기술기반 초기기업에 투자하여 이사회를 통해 직간접적으로 그 기업의 경영에 참여하고 그 기업의 투명성 제고에 일조해왔다. 실제로 2004년부터 2010년까지 국내에서 신규 상장된 기업에서도 벤처캐피탈의 투자가 투자기업의 투명성 제고에 미치는 영향이 어떤지 알아보기 위해 회귀분석을 실시하여 본 결과 첫째, 자산규모가 크고 부채비율이 높을수록 기업 투명성은 저하되었다. 둘째, 우량한 기업지배구조의한 지표가 되는 지배소유지분괴리 정도가 작을수록 기업 투명성은 제고되었다. 셋째, 설립부터 기업공개까지 소요기간이 짧을수록, PBR이 높은 고성장 기업일수록 투명성은 저하되었다. 다만, 벤처캐피탈의 투자가 직접적으로 기업 투명성 제고에 역할을 하는 지 확인할 수 없었으나, 기업공개까지 소요기간이 짧을수록 기업 투명성이 저하되는 결과가 나옴으로써 벤처캐피탈의 투자가 기업 투명성에 부정적인 역할을 하는 가능성을 배제할 수 없다. 더욱이, 기업 투명성이 낮은 기업이 더 많은 벤처캐피탈의 투자를 받았고, 벤처캐피탈이 주로 투자하는 PBR이 높은 고성장 기업일수록 기업 투명성이 저하되는 결과가 나와 이런 주장은 더욱 설득력이 있을 것으로 보인다. In general, a venture capital invests in tech startups and helps them improve the corporate transparency through board of directors. With respect to venture capital investment and its impact on the corporate transparency of the newly public firms from 2004 to 2010 in Korea, we have made regression analysis. First, it was found that it was likely to be less transparent, the larger its asset size or the higher its debt ratio was. Second, lower level of ownership-control disparity resulted in higher transparency. Third, a shorter period to IPO and higher growth rate were more prominent in companies with lower degree of transparency. The above findings were not conclusive to prove whether or not venture capital directly increases the transparency level of its portfolio companies, but do insinuate the possibility of a negative impact on the transparency of its investee companies, as early IPO's were associated with less transparency. This is all the more persuasive as it was observed that companies with a lower level of transparency had generally raised more money from venture capitals, and that companies with a higher growth rate and/or higher PBR, have shown to be less transparent.

Ownership-Control Disparity and Dividend Policy in Korea: Perspectives of Agency Theory

Ownership-Control Disparity and Dividend Policy in Korea: Perspectives of Agency Theory

Ownership-control Disparity and Corporate Value in Korea: The Consequences of Owner-managed and Agent-led Firm

Ownership-control Disparity and Corporate Value in Korea: The Consequences of Owner-managed and Agent-led Firm

Ownership-control Disparity and Corporate Diversification in Korea: Perspectives of Agency Problem

Ownership-control Disparity and Corporate Diversification in Korea: Perspectives of Agency Problem

The Amount of Shares Held by Chaebol’s Other Affiliated Firms and Affiliated Firm's OwnershipControl Disparity: A Cross-Sectional Analysis

We examine the relationship between the amount of shares held by Chaebol’s other affiliated firms and affiliated firm's ownership-control disparity. To this end, the ownership-control disparity equations are estimated with the ownership-control disparity index and the voting right leverage index as dependent variables, using cross-sectional data on 78 affiliated firms in Chaebols in 2005. These Chaebols are controlled by the ceiling on the total amount of holding shares of other affiliated firms in Chaebol. The estimation results with the ownership-control disparity index indicate that the increase in the amount of shares held by Chaebol’s other affiliated firms deepens the ownership-control disparity. And the amount of net assets and the amount of cash flow mitigate the ownership-control disparity. The estimation results of the voting right leverage index are almost the same as those of the ownership-control disparity index. We also find that the ownership-control disparity index is more elastic than the voting right leverage index with respect to the amount of shares held by Chaebol’s other affiliated firms. Overall, these empirical findings suggest that the ceiling on the total amount of holding shares of other affiliated firms in Chaebol can contribute to the desirable corporate governance.