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Chaebol, Investment Opportunity Set and Corporate Debt and Dividend Policies of Korean Companies

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  • Gul, Ferdinand A
  • Kealey, Burch T

Abstract

This paper examines explanations for the association between Korean Chaebol, which are giant conglomerates supported by various government initiatives, and corporate debt and dividend policies. Unlike in the US, the Korean corporate sector is dominated by the Chaebol which are characterized by concentrated family ownership, political affiliation and bank ownership. These institutional arrangements are likely to encourage more debt financing. In addition, the study also investigates whether firms with more growth options measured in terms of the investment opportunity set (IOS) have lower leverage and dividends. Results using observations from 411 Korean firms showed that for a fixed level of growth opportunities, Chaebol carry higher levels of debt. Results also show that growth options were negatively associated with leverage and dividends. No association, however, was found between Chaebol and dividends. Copyright 1999 by Kluwer Academic Publishers

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  • Gul, Ferdinand A & Kealey, Burch T, 1999. "Chaebol, Investment Opportunity Set and Corporate Debt and Dividend Policies of Korean Companies," Review of Quantitative Finance and Accounting, Springer, vol. 13(4), pages 401-416, December.
    • Handle: RePEc:kap:rqfnac:v:13:y:1999:i:4:p:401-16
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    Cited by:

    1. Joshua Abor & Godfred A. Bokpin, 2010. "Investment opportunities, corporate finance, and dividend payout policy," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 27(3), pages 180-194, August.
    2. Ferris, Stephen P. & Kim, Kenneth A. & Kitsabunnarat, Pattanaporn, 2003. "The costs (and benefits?) of diversified business groups: The case of Korean chaebols," Journal of Banking & Finance, Elsevier, vol. 27(2), pages 251-273, February.
    3. Ducret, Romain & Isakov, Dušan, 2023. "Business group heterogeneity and firm outcomes: Evidence from Korean chaebols," FSES Working Papers 531, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    4. Flavin, Thomas & O'Connor, Thomas, 2017. "Reputation building and the lifecycle model of dividends," Pacific-Basin Finance Journal, Elsevier, vol. 46(PA), pages 177-190.
    5. Doocheol Moon & Kishore Tandon, 2007. "The influence of growth opportunities on the relationship between equity ownership and leverage," Review of Quantitative Finance and Accounting, Springer, vol. 29(4), pages 339-351, November.
    6. Jun Jiang & Komain Jiranyakul, 2013. "Capital Structure, Cost of Debt and Dividend Payout of Firms in New York and Shanghai Stock Exchanges," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 113-121.
    7. Özgür Arslan-Ayaydin & Chris Florackis & Aydin Ozkan, 2014. "Financial flexibility, corporate investment and performance: evidence from financial crises," Review of Quantitative Finance and Accounting, Springer, vol. 42(2), pages 211-250, February.
    8. Dr. Faris Nasif AL- Shubiri, 2012. "Determinants Of Changes Dividend Behavior Policy: Evidence From The Amman Stock Exchange," Far East Journal of Marketing and Management, Far East Research Centre, vol. 2(1), pages 1-13, August.
    9. Mustafa Cayir & Nasuh Oguzhan Altay, 2021. "Direct and Indirect Effects of Cash Dividend Policies on Firms’ Capital Accumulation in Selected Developed Markets," Istanbul Business Research, Istanbul University Business School, vol. 50(2), pages 235-254, November.
    10. Basil Al‐Najjar, 2009. "Dividend behaviour and smoothing new evidence from Jordanian panel data," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 26(3), pages 182-197, July.
    11. Clement Chow & Michael Fung & Kevin Lam & Heibatollah Sami, 2012. "Investment opportunity set, political connection and business policies of private enterprises in China," Review of Quantitative Finance and Accounting, Springer, vol. 38(3), pages 367-389, April.
    12. Abdul Moin & Yilmaz Guney & Izidin El Kalak, 2020. "The effects of ownership structure, sub-optimal cash holdings and investment inefficiency on dividend policy: evidence from Indonesia," Review of Quantitative Finance and Accounting, Springer, vol. 55(3), pages 857-900, October.

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