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When heirs become major shareholders: Evidence on pyramiding financed by related-party sales

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  • Hwang, Sunwoo
  • Kim, Woochan

Abstract

This study investigates how related-party sales are used as a means to financially support the firms in which heirs become major shareholders and allow them to strengthen control over other firms in the group through pyramiding. From a universe of Korean chaebol firms during 2000–2011, we identify a subset of firms where heirs become major shareholders (treatment group) and compare them against their propensity-score-matched firms (control group) before and after the ownership change. A series of difference-in-differences tests with firm fixed effects reveal that treatment group firms experience greater related-party sales, benefit from them in terms of earnings, and gain importance in controlling other firms in the group. However, we do not find these results when non-heirs (e.g., controlling shareholders and other relatives) become major shareholders.

Suggested Citation

  • Hwang, Sunwoo & Kim, Woochan, 2016. "When heirs become major shareholders: Evidence on pyramiding financed by related-party sales," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 23-42.
    • Handle: RePEc:eee:corfin:v:41:y:2016:i:c:p:23-42
    DOI: 10.1016/j.jcorpfin.2016.08.013
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