Publications
Publications
- 2021
- HBS Working Paper Series
Governance Transparency and Firm Value: Evidence from Korean Chaebols
By: Akash Chattopadhyay, Sa-Pyung Sean Shin and Charles C.Y. Wang
Abstract
We examine Korean business groups' transition from circular-shareholding structures to (relatively simple) pyramidal-shareholding structures between 2011 and 2018. When firms were removed from ownership loops, chaebol families' control or incentive conflicts in them were unaffected; yet their values declined in accordance with families' incentive conflicts. Non-loop group firms' values increased (declined) when little (significant) agency issues that were difficult to identify under circular-shareholding structures existed. As families' incentive conflicts become clearer ("governance transparency"), earnings responsiveness increases but, by enabling investors to update priors about the relative severity of agency issues across group firms, firm values can increase or decrease.
Keywords
Business Groups; Cross Shareholding; Circular Shareholding; Pyramidal Ownership; Governance Transparency; Ownership Transparency; Earnings Response Coefficient; Business Conglomerates; Corporate Governance; Valuation; Business Earnings
Citation
Chattopadhyay, Akash, Sa-Pyung Sean Shin, and Charles C.Y. Wang. "Governance Transparency and Firm Value: Evidence from Korean Chaebols." Harvard Business School Working Paper, No. 22-012, September 2021. (Revised November 2021.)