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

  • Kim, Kevin Y.
  • Park, Kwangwoo
  • Ratti, Ronald A.
  • Shin, Hyun-Han

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/10086/7671/1/HJeco0450100150.pdf
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Article provided by Hitotsubashi University in its journal Hitotsubashi Journal of Economics.

Volume (Year): 45 (2004)
Issue (Month): 1 (June)
Pages: 15-45

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Handle: RePEc:hit:hitjec:v:45:y:2004:i:1:p:15-45
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  1. Simon Gilchrist & Charles P. Himmelberg, 1993. "Evidence on the role of cash flow for investment," Finance and Economics Discussion Series 93-7, Board of Governors of the Federal Reserve System (U.S.).
  2. Ramon Moreno, 1998. "What caused East Asia's financial crisis?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue aug7.
  3. Jarrad Harford, 1999. "Corporate Cash Reserves and Acquisitions," Journal of Finance, American Finance Association, vol. 54(6), pages 1969-1997, December.
  4. 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.
  5. Elsas, Ralf & Krahnen, Jan Pieter, 1998. "Is relationship lending special? Evidence from credit-file data in Germany," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1283-1316, October.
  6. 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.
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