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Do Main Banks Extract Rents from their Client Firms? Evidence from Korean Chaebol

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  • Kim, Yitae
  • Park, Kwangwoo
  • Ratti, Ronald
  • Shin, Hyun-Han

Abstract

Using a unique data set on all industrial firms listed on Korea Stock Exchange and KOSDAQ stock market from 1991 to 2000, we find that cash ratios for chaebol firms are lower than for non-chaebol firms. Controlling for access to the bond market and financial services arms does not change this result. We do however find that there is a shift in the degree of bank power over the last decade. Consistent with the main bank monopoly hypothesis during the corporate restructuring process after the financial crisis in 1997, the interest differential charged to chaebol firms is significantly higher than the earlier period, suggesting extraction of rents against chaebol client firms by main banks.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/13894/1/wp2002-9a.pdf
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Bibliographic Info

Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2002-9.

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Length: 42 p.
Date of creation: Sep 2002
Date of revision:
Handle: RePEc:hit:hitcei:2002-9

Note: This Version: June 2002; First Version: May 2001
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Keywords: Cash holdings; bank power; rent extraction; Korean chaebol;

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References

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  1. Gilchrist, S. & Himmelberg, C.P., 1995. "Evidence on the Role of Cash Flow for Investment," Papers 95-29, Columbia - Graduate School of Business.
  2. Joon-Ho Hahm & Frederic S. Mishkin, 2000. "Causes of the Korean Financial Crisis: Lessons for Policy," NBER Working Papers 7483, National Bureau of Economic Research, Inc.
  3. Elsas, Ralf & Krahnen, Jan Pieter, 1998. "Is relationship lending special? Evidence from credit-file data in Germany," CFS Working Paper Series 1998/05, Center for Financial Studies (CFS).
  4. Jarrad Harford, 1999. "Corporate Cash Reserves and Acquisitions," Journal of Finance, American Finance Association, vol. 54(6), pages 1969-1997, December.
  5. Ferris, Stephen P. & Kim, Kenneth A. & Kitsabunnarat, Pattanaporn, 2003. "The costs (and benefits?) of diversified business groups: The case of Korean chaebols," Journal of Banking & Finance, Elsevier, vol. 27(2), pages 251-273, February.
  6. Ramon Moreno, 1998. "What caused East Asia's financial crisis?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue aug7.
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Cited by:
  1. Lee, Sangwoo & Park, Kwangwoo & Shin, Hyun-Han, 2005. "The Very Dark Side of Internal Capital Markets: Evidence from Diversified Business Groups in Korea," CEI Working Paper Series 2005-7, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  2. Slomka, Agnieszka, 2005. "Have banks filled the gap? Credit as a mechanism of corporate governance in a transition country: example of Poland," MPRA Paper 642, University Library of Munich, Germany.
  3. Lee, Sangwoo & Park, Kwangwoo & Shin, Hyun-Han, 2009. "Disappearing internal capital markets: Evidence from diversified business groups in Korea," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 326-334, February.

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