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Private benefits of control and firm leverage: An analysis of Korean firms

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Author Info
Jangkoo Kang ()
Joon-Seok Kim ()
Abstract

This paper investigates the leverage choices of an entrenched controlling party. If debt effectively curbs the private benefits of control, the controlling shareholder is given incentives to avoid debt. Using estimates of the private benefits of control and financial statement data from selected Korean firms, we find that a controlling party with large private benefits tends to lower debt. This relationship was concentrated after the Asian financial crisis. However, before the crisis, firms that affiliated with Korean conglomerates, chaebols, used more debt as private benefits increased. A financial reform program triggered by the crisis seems to have actuated the disciplining role of debt. Copyright Springer Science + Business Media, LLC 2006

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File URL: http://hdl.handle.net/10.1007/s11156-006-0046-z
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Publisher Info
Article provided by Springer in its journal Review of Quantitative Finance and Accounting.

Volume (Year): 27 (2006)
Issue (Month): 4 (December)
Pages: 439-463
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Handle: RePEc:kap:rqfnac:v:27:y:2006:i:4:p:439-463

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Web page: http://springerlink.metapress.com/link.asp?id=102990

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Related research
Keywords: Private benefits of control; Capital structure; Chaebols ; Financial crisis;

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  2. Borensztein, Eduardo & Lee, Jong-Wha, 2002. "Financial crisis and credit crunch in Korea: evidence from firm-level data," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 853-875, May. [Downloadable!] (restricted)
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  3. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
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  5. Barclay, Michael J. & Holderness, Clifford G., 1989. "Private benefits from control of public corporations," Journal of Financial Economics, Elsevier, vol. 25(2), pages 371-395, December. [Downloadable!] (restricted)
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  13. Harris, Milton & Raviv, Artur, 1990. " Capital Structure and the Informational Role of Debt," Journal of Finance, American Finance Association, vol. 45(2), pages 321-49, June. [Downloadable!] (restricted)
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  19. Harvey, Campbell R. & Lins, Karl V. & Roper, Andrew H., 2004. "The effect of capital structure when expected agency costs are extreme," Journal of Financial Economics, Elsevier, vol. 74(1), pages 3-30, October. [Downloadable!] (restricted)
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  20. Doidge, Craig, 2004. "U.S. cross-listings and the private benefits of control: evidence from dual-class firms," Journal of Financial Economics, Elsevier, vol. 72(3), pages 519-553, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Doocheol Moon & Kishore Tandon, 2007. "The influence of growth opportunities on the relationship between equity ownership and leverage," Review of Quantitative Finance and Accounting, Springer, vol. 29(4), pages 339-351, November. [Downloadable!] (restricted)
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