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Business Groups and Tunneling: Evidence from Private Securities Offerings by Korean Chaebols

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Author Info
Baek, Jae-Seung
Kang, Jun-Koo
Lee, Inmoo
Abstract

Using a comprehensive sample of equity-linked private securities offerings by Korean firms from 1989 to 2000, we examine whether such offerings can be used as a mechanism for wealth transfer between issuers and acquirers. For deals involving issuers and acquirers in the same business group (chaebol), the announcement returns for chaebol-affiliated issuers with good past performance are lower than those for other types of issuers if the price discount is larger. In contrast, this deal leads to more value creation for chaebol-affiliated acquirers than other types of acquirers. Furthermore, well-performing chaebol-affiliated acquirers experience a larger wealth loss than other types of acquirers if they buy securities from poorly performing issuers in the same chaebol. We also find that chaebol firms with good past performance tend to sell private securities at a low price to their member firms. This evidence is consistent with tunneling within business groups.

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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 2004-6.

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Length: 43 p.
Date of creation: Mar 2004
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Handle: RePEc:hit:hitcei:2004-6

Note: This version: January 2004
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