Business Groups and Tunneling: Evidencefrom Private Securities Offeringsby Korean Chaebols

We examine whether equity-linked private securities offerings are used as a mechanism for tunneling among firms that belong to a Korean chaebol. We find that chaebol issuers involved in intragroup deals set the offering prices to benefit their controlling shareholders. We also find that chaebol issu...

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Bibliographic Details
Published in:The Journal of finance (New York) 2006-10, Vol.61 (5), p.2415
Main Authors: JAE-SEUNG BAEK, Jun-Koo, Kang, Lee, Inmoo
Format: Article
Language:English
Subjects:
Conglomerates
Economic models
Multivariate analysis
Rates of return
Securities trading
Stock prices
Stockholders
Studies
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Summary:We examine whether equity-linked private securities offerings are used as a mechanism for tunneling among firms that belong to a Korean chaebol. We find that chaebol issuers involved in intragroup deals set the offering prices to benefit their controlling shareholders. We also find that chaebol issuers (member acquirers) realize an 8.8% (5.8%) higher (lower) announcement return than do other types of issuers (acquirers) if they sell private securities at a premium to other member firms, and if the controlling shareholders receive positive net gains from equity ownership in issuers and acquirers. These results are consistent with tunneling within business groups. [PUBLICATION ABSTRACT]
ISSN:0022-1082
1540-6261