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Closing inefficient affiliates: evidence from Korean conglomerates

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  • Heechul Min
  • Wook Sohn

Abstract

In the wake of the financial crisis, the Korean government and creditor banks announced a 'blacklist' of 55 firms to be forced to exit the market. This article examines the effects that the closed affiliated firms had on stock market values of the Korean business groups (chaebols). We find that the announcement had an immediately negative effect on the remaining affiliates. The announcement's adverse effect became worse as firms had more affiliates in the 'blacklist' and had more investment from them, after controlling for various firm characteristics. These results suggest that the corresponding chaebols had financially weak firms besides those in the 'blacklist', or that the affiliates could not recover their investment when the blacklisted firms were closed.

Suggested Citation

  • Heechul Min & Wook Sohn, 2008. "Closing inefficient affiliates: evidence from Korean conglomerates," Applied Financial Economics, Taylor & Francis Journals, vol. 18(16), pages 1351-1361.
    • Handle: RePEc:taf:apfiec:v:18:y:2008:i:16:p:1351-1361
    DOI: 10.1080/09603100701663254
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