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Related-Party Transactions, Chaebol Affiliations, and the Value of Cash Holdings

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  • Hyunjung Choi

    (College of Global Business and Technology, Sungkyul University, Anyang-si 14097, Korea)

  • Jungeun Cho

    (College of Business Administration, Pukyong National University, Busan 48513, Korea)

Abstract

This study examines whether related-party transactions (RPTs) impact the value of firms’ cash holdings. Using a 2011–2018 sample of Korean public firms, we find that greater RPTs lead to lower cash holdings value. In particular, this decline is more pronounced in Korean chaebol firms than in non-chaebol firms. Our findings suggest that a unique and complex corporate governance structure of chaebol firms makes it difficult for outside investors to monitor firms’ internal cash management decisions, resulting in a negative valuation of cash holdings. This study contributes to the extant literature by providing additional evidence that RPTs in chaebol firms with severe agency problems may lower the value of cash holdings.

Suggested Citation

  • Hyunjung Choi & Jungeun Cho, 2021. "Related-Party Transactions, Chaebol Affiliations, and the Value of Cash Holdings," Sustainability, MDPI, vol. 13(2), pages 1-13, January.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:2:p:699-:d:479392
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    Cited by:

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    2. Abdulaziz Alsultan & Khaled Hussainey, 2024. "The Moderating Effect of Ownership Structure on the Relationship between Related Party Transactions and Earnings Quality: Evidence from Saudi Arabia," IJFS, MDPI, vol. 12(3), pages 1-25, June.

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