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Corporate fraud under pyramidal ownership structure: Evidence from a regulatory reform

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  • Choi, Daewoung
  • Gam, Yong Kyu
  • Shin, Hojong

Abstract

This paper explores a causal relationship between firms' ownership structures and the likelihood of corporate fraud. We document that central firms that control the business group tend to commit corporate frauds related to unlawful intragroup trades (collusive activities and unfair transactions). Following South Korea's 2001 regulatory reform that imposes a ceiling on firms' total amount of shareholding of domestic companies, the frequency of corporate frauds was reduced more in central firms than in non-central firms as the controlling owner's cash-flow rights dropped more in central firms. These results suggest that controlling owners commit frauds to pursue their private benefit.

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  • Choi, Daewoung & Gam, Yong Kyu & Shin, Hojong, 2020. "Corporate fraud under pyramidal ownership structure: Evidence from a regulatory reform," Emerging Markets Review, Elsevier, vol. 45(C).
    • Handle: RePEc:eee:ememar:v:45:y:2020:i:c:s1566014120300388
    DOI: 10.1016/j.ememar.2020.100726
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    3. Chung, Chune Young & Kim, Hyeik & Wang, Kainan, 2022. "Do domestic or foreign institutional investors matter? The case of firm information asymmetry in Korea," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    4. Shah, Muhammad Hashim & Xiao, Zuoping & Abdullah,, 2023. "Internal pyramid structure, judicial efficiency, firm-level governance and dividend policy," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 764-785.

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    More about this item

    Keywords

    Corporate fraud; Pyramidal ownership structure; Regulatory reform; Private benefit;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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