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Tunneling or Value Added? Evidence from Mergers by Korean Business Groups

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  • Kee-Hong Bae

    (College of Business Administration, Korea University,)

  • Jun-Koo Kang

    (Eli Broad College of Business, Michigan State University)

  • Jin-Mo Kim

    (Eli Broad College of Business, Michigan State University)

Abstract

We examine whether firms belonging to Korean business groups (chaebols) benefit from acquisitions they make or whether such acquisitions provide a way for controlling shareholders to increase their wealth by increasing the value of other group firms (tunneling). We find that when a chaebol-affiliated firm makes an acquisition, its stock price on average falls. While minority shareholders of a chaebol-affiliated firm making an acquisition lose, the controlling shareholder of that firm on average benefits because the acquisition enhances the value of other firms in the group. This evidence is consistent with the tunneling hypothesis. Copyright The American Finance Association 2002.

Suggested Citation

  • Kee-Hong Bae & Jun-Koo Kang & Jin-Mo Kim, 2002. "Tunneling or Value Added? Evidence from Mergers by Korean Business Groups," Journal of Finance, American Finance Association, vol. 57(6), pages 2695-2740, December.
  • Handle: RePEc:bla:jfinan:v:57:y:2002:i:6:p:2695-2740
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