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Pyramid Business Groups in East Asia: Insurance or Tunneling?

Author

Listed:
  • Obata, Seki

Abstract

A business group with a pyramid ownership structure is a prevalent form in developing countries. I show that the propping up function of pyramid groups exists only in countries without good investor protection where minority shareholders could be expropriated with low cost. A pyramid business group is not insurance mechanism for all group firms. My predictions are supported by the data on East Asian firms in 1990s. Additionally, I find that the pyramid ownership does not affect the valuation of non-distressed firms. This might be the reason that the outsider invested in the group bottom firms before the Asian Crisis.

Suggested Citation

  • Obata, Seki, 2003. "Pyramid Business Groups in East Asia: Insurance or Tunneling?," CEI Working Paper Series 2002-13, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:hitcei:2002-13
    Note: First draft: April 2001; This version: March 2003
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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/13923/1/wp2002-13a.pdf
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    References listed on IDEAS

    as
    1. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 33-60.
    2. Mike Burkart & Denis Gromb & Fausto Panunzi, 1998. "Why Higher Takeover Premia Protect Minority Shareholders," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 172-204, February.
    3. Larry H. P. Lang & Mara Faccio & Leslie Young, 2001. "Dividends and Expropriation," American Economic Review, American Economic Association, vol. 91(1), pages 54-78, March.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Bowo Setiyono & Amine Tarazi, 2014. "Does the presence of institutional investors in family banks affect profitability and risk? Evidence from an emerging market," Working Papers hal-01077118, HAL.
    2. Bowo Setiyono & Amine Tarazi, 2014. "Does diversity of bank board members affect performance and risk? Evidence from an emerging market," Working Papers hal-01070988, HAL.

    More about this item

    Keywords

    Pyramid ownership; Business group; Tunneling; Investor Protection;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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