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Determinants of Family Ownership: The Choice between Control and Performance

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  • Jang, Hasung
  • Kang, Hyung-cheol
  • Park, Kyung Suh

Abstract

This paper analyzes what determines ownership structure of family firms in Korea. Our analysis shows that control is as important a factor as performance in the determination of whether a family in Korea chooses to own a firm. The controlling family prefers to own shares of de facto holding companies because they provide control over affiliated companies and firms that perform well. The family, however, allows its affiliated companies to own more shares of firms that perform poorly and of firms that do not provide the family with power to control the firm. In addition, controlling families own fewer shares of firms that make bond investments in affiliated companies because bond holding does not provide control. We carry out logit regressions for firms without family ownership and for firms with a positive family ownership. The family chooses not to own shares regardless of a firm's performance if the firm does not provide significant control over affiliated companies. We also show that the family values its control more for closely held firms.

Suggested Citation

  • Jang, Hasung & Kang, Hyung-cheol & Park, Kyung Suh, 2005. "Determinants of Family Ownership: The Choice between Control and Performance," CEI Working Paper Series 2005-5, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:hitcei:2005-5 Note: Revision in April 2005
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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/13483/1/wp2005-5a.pdf
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    References listed on IDEAS

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    1. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
    2. Coles, Jeffrey L. & Lemmon, Michael L. & Felix Meschke, J., 2012. "Structural models and endogeneity in corporate finance: The link between managerial ownership and corporate performance," Journal of Financial Economics, Elsevier, vol. 103(1), pages 149-168.
    3. Bhattacharya, Utpal & Ravikumar, B, 1997. "From Cronies to Professionals: The Evolution of Family Firms," MPRA Paper 22939, University Library of Munich, Germany, revised Jan 2004.
    4. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
    5. Bernard S. Black & Hasung Jang & Woochan Kim, 2006. "Does Corporate Governance Predict Firms' Market Values? Evidence from Korea," Journal of Law, Economics, and Organization, Oxford University Press, vol. 22(2), pages 366-413, October.
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    Cited by:

    1. Irfah Najihah Basir Malan & Norhana Salamudin & Noryati Ahmad, 2013. "Determinants of Firm Affiliation to Pyramid Structure: A Survey from Malaysian Public Listed Firms," Journal of Asian Scientific Research, Asian Economic and Social Society, vol. 3(6), pages 549-569, June.

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