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The Benefits and Costs of Group Affiliation: Evidence from East Asia

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  • Claessens, Stijn
  • Fan, Joseph P.H.
  • Lang, Larry H.P.

Abstract

This Paper investigates the benefits and associated agency costs of using internal capital markets through affiliating with groups using data of two thousand firms from nine East Asian economies between 1994-96. We find that mature and slow-growing firms with ownership structures more likely to create agency problems gain more from group affiliation, while young and high-growth firms are more likely lose. Agency problems are important explanatory factors of firm value in economies outside Japan, but less so in Japan. Consistent with the literature, financially constrained firms benefit from group affiliation. Our results are robust to different time periods and estimation techniques.
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Suggested Citation

  • Claessens, Stijn & Fan, Joseph P.H. & Lang, Larry H.P., 2002. "The Benefits and Costs of Group Affiliation: Evidence from East Asia," WIDER Working Paper Series 047, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:dp2002-47
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    References listed on IDEAS

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    More about this item

    Keywords

    business group; group affiliation; East Asian corporations;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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