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

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Author Info
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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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
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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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Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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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. Ahn, Sanghoon, 2003. "Technology Upgrading with Learning Cost," CEI Working Paper Series 2003-21, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  2. Hanazaki, Masaharu & Horiuchi, Akiyoshi, 2003. "Have Banks Contributed to Efficient Management in Japan's Manufacturing?," CEI Working Paper Series 2003-22, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  3. Dallago, Bruno, 2003. "Comparative Economic Systems and the New Comparative Economics: Foes, Competitors, or Complementary?," CEI Working Paper Series 2003-24, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
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