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25
Table 1: Sample Chaebol Groups
List of chaebol groups, and the number of their member firms in each year. Column (1) lists a total of 26 Chaebols designated by the FTC for at least 6 years during the sample period of 2000-2009 (e.g. designated in the Aprils of 2001 to 2010). Column (2) counts the number of member firms in each group in each year. Column (3) shows the controlling shareholders’ names and column (4) the generations from founders (1, 2, and 3 indicates 1st , 2nd, and 3rd generation).
No
(1) (2) (3) (4)
Chaebol Name Number of Member Firms
Controlling Shareholder Gener-ation 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
1 CJ 26 24 30 38 45 53 60 62 61 53 Lee Jae-Hyun 3 2 Daelim 14 13 13 11 11 12 14 14 16 16 Lee Joon-Yong 2 3 Dongbu 13 15 17 16 14 15 15 21 24 22 Kim Jun-Ki 1 4 Dongkuk Steel 8 6 7 8 8 12 11 12 13 11 Jang Se-Joo 3 5 Doosan 16 16 20 20 17 17 17 19 22 25 Park Yong-Gon 3
6 GS - - - - 40 49 48 57 63 68 Huh Chang-Soo 3
7 Hanjin 17 19 21 21 22 21 25 27 32 37 Cho Joong-Hoon (~2002), Cho Yang-Ho (2003~) 1, 2 8 Hanwha 21 22 27 25 25 24 27 33 35 40 Kim Seung-Youn 2 9 Hyosung 14 14 14 15 15 16 22 28 39 38 Cho Suk-Rae 2 10 Hyundai 18 11 9 8 6 9 8 8 9 11 Chung Mong-Hun (~2003), Hyun Jeong-Eun (2004~) 2, 3 11 Hyundai Department Store 15 10 19 17 20 23 24 25 24 29 Chung Mong-Keun (~2006), Chung Ji-Sun (2007~) 2, 3 12 Hyundai Development Company 8 9 10 11 11 12 15 14 15 14 Chung Se-Young (~2006), Chung Mong-Kyu (2007~) 1, 2 13 Hyundai Heavy Industries - - 3 3 4 4 4 6 8 10 Chung Mong-Joon 2 14 Hyundai Motor Company 14 21 21 26 26 37 34 33 37 38 Chung Mong-Koo 2
15 KCC - 5 5 6 4 4 4 6 9 9 Chung Sang-Yong 1
16 Kolon 22 28 31 30 27 22 33 33 37 35 Lee Dong-Chan (~2006), Lee Woong-Yeol (2007~) 2, 3 17 Kumho 14 13 13 14 16 21 34 50 47 46 Park Sung-Yong (~2005), Park Sam-Koo (2006~) 2, 2
18 LG 37 46 45 45 47 32 31 36 52 53 Koo Bon-Moo 3
19 Lotte 30 31 33 33 39 41 42 43 51 57 Shin Kyuk-Ho 1
20 LS - - - 7 17 19 19 23 31 43 Koo Tae-Hoi 1
21 OCI 22 19 19 19 18 19 18 15 18 18 Lee Hoi-Rim (~2007), Lee Soo-Young (2008~) 1, 2 22 Samsung 55 54 54 55 53 49 50 49 53 57 Lee Kun-Hee 2 23 Shinsegae 9 10 12 12 13 14 15 15 15 12 Lee Myung-Hee 2 24 SK 50 57 55 54 46 54 55 63 75 74 Chey Tae-Won 2 25 Tongyang 20 8 7 8 8 8 14 13 15 17 Hyun Jae-Hyun 2 26 Youngpoong 23 24 23 20 19 26 22 21 22 23 Jang Byung-Hee (~2002), Jang Hyung-Jin (2003~) 1, 2 Total number of Chaebols 22 23 24 25 26 26 26 26 26 26
Total number of group firms 466 475 508 522 571 613 661 726 823 856
26
Table 2: Variable Definitions and Summary Statistics
Definition and summary statistics of variables used in this paper. Panel A defines each variable. Panel B provides summary statistics for each family group. We use nonfinancial firms from 26 chaebol groups (see Table 1) during 2000-2009.
Panel A. Variable Definitions
Variables Definitions Left-Hand Side Variables
RPTit ln[(sum of related-party sales and purchases/ GDP deflator) + 1]; related-party sales and purchase are measured in million Korean won (approximately thousand US dollars)
RPSit ln[(related-party sales/ GDP deflator) + 1]; related-party sales are measured in million Korean won (approximately thousand US dollars)
RPPit ln[(related-party purchases/ GDP deflator) + 1]; related-party purchase are measured in million Korean won (approximately thousand US dollars) EBITDAit ln(absolute value of earnings before interest, taxes, depreciation and
amortization/GDP deflator) x sign of original EBITDA if its absolute value is greater than 1, and 0 otherwise.
MCIit Marginal contribution to group control index; winsorized at the 99th percentile values; see Section 3.C for the details of its definition.
DIVit ln[(dividend/ GDP deflator) + 1]; dividend is measured in million Korean won (approximately thousand US dollars)
Right-Hand Side Variables
TGi Treatment group dummy, which takes a value of 1 if the firm i experiences a major increase in heir’s ownership and 0 otherwise. Major increase in heir’s ownership means that its net ownership (heir’s ownership – controlling shareholder’s ownership – other relatives’ ownership) increases by more than 5%p and it is greater than both, the controlling shareholder’s ownership and the other relatives’ ownership. Other treatment group dummies used in our falsification tests are similarly defined.
TPit Treatment period dummy that takes a value of 1 if firm i is treated at year t or before. Notice that this treatment period dummy is defined separately for each treatment group firm i. Firm i and firm i’s matching firm takes the same value for TPit.
NOWN_Hit Heir’s net ownership; heir’s ownership (OWN_Hit) – controlling shareholders’
ownership (OWN_Cit) – other relatives’ ownership (OWN_Rit)
NOWN_Cit Controlling shareholders’ net ownership; controlling shareholders’ ownership (OWN_Cit) – heir’s ownership (OWN_Hit) – other relatives’ ownership (OWN_Rit)
NOWN_Rit Other relatives’ net ownership; other relatives’ ownership (OWN_Rit) – heir’s ownership (OWN_Hit) – controlling shareholders’ ownership (OWN_Cit) Firm size ln(Total assets/GDP deflator); total assets are measured in million Korean
won (approximately thousand US dollars)
Firm age Number of years since a firm’s establishment, measured by ln(year - year of establishment)
Leverage ln[(Book value of debt /total assets)+1]
Cash holdings ln(Cash and cash equivalents / total assets)
R&D expenditure ln[(R&D/ Sales) x 100 +1]; winsorized at the 99th percentile values Advertising expenditure ln[(Advertising / Sales) x 100 +1]; winsorized at the 99th percentile values Spin-off 1 if a firm experiences spin-off at year t or before, and 0 otherwise.
Merger 1 if a firm experiences merger at year t or before, and 0 otherwise.
New affiliate 1 if a firm is affiliated to a business group at year t or before, and 0 otherwise.
27 Panel B. Summary Statistics
Variables Heir Controlling Shareholders Other Relatives N Mean Med. S.D. Min. Max. N Mean Med. S.D. Min. Max. N Mean Med. S.D. Min. Max.
RPTit 632 10.85 10.95 1.95 0.00 15.47 416 10.66 10.75 2.19 0.00 14.67 507 9.64 9.74 2.86 0.00 14.93 RPSit 632 10.02 10.36 2.56 0.00 15.18 416 9.32 10.14 3.12 0.00 14.29 507 8.49 9.29 3.45 0.00 14.06 RPPit 632 8.98 9.32 2.72 0.00 14.70 416 9.09 9.54 3.13 0.00 14.03 507 7.87 8.19 3.64 0.00 14.68 EBITDAit 617 7.26 9.00 5.85 -11.49 14.42 384 8.17 9.25 5.31 -13.16 13.94 495 6.27 8.37 6.34 -13.16 13.64 MCIit 626 0.26 0.00 0.72 0.00 3.98 418 0.23 0.00 0.65 0.00 3.98 459 0.28 0.00 0.59 0.00 3.98 DIVit 616 3.93 0.00 4.17 0.00 12.38 384 4.14 0.00 4.38 0.00 11.58 495 2.75 0.00 3.89 0.00 11.58 TGi 650 0.51 1.00 0.50 0.00 1.00 430 0.53 1.00 0.50 0.00 1.00 538 0.50 0.50 0.50 0.00 1.00 TPit 650 0.49 0.00 0.50 0.00 1.00 430 0.50 1.00 0.50 0.00 1.00 538 0.54 1.00 0.50 0.00 1.00 NOWNit 637 0.02 0.00 0.19 -0.60 1.00 430 -0.03 0.00 0.09 -0.44 0.20 482 -0.11 0.00 0.33 -1.00 0.75 OWNit 637 0.07 0.00 0.15 -0.03 1.00 430 0.03 0.00 0.07 -0.01 0.43 482 0.13 0.00 0.29 -0.41 1.00 Firm size 617 11.99 12.01 1.52 8.66 15.86 384 12.32 12.18 2.10 6.45 17.03 495 11.68 11.16 1.88 8.26 15.95 Firm age 629 2.45 2.64 0.96 0.00 4.09 415 2.48 2.64 1.08 0.00 4.03 516 2.32 2.30 1.08 0.00 4.33 Leverage 617 0.43 0.44 0.13 0.01 0.72 384 0.43 0.46 0.15 0.01 0.76 495 0.47 0.49 0.17 0.00 1.16 Cash holdings 617 0.06 0.04 0.07 0.00 0.51 384 0.06 0.03 0.09 0.00 0.64 495 0.06 0.02 0.09 0.00 0.51 R&D 650 0.08 0.00 0.27 0.00 1.42 430 0.12 0.00 0.32 0.00 1.42 538 0.05 0.00 0.20 0.00 1.42 Advertising 650 0.30 0.04 0.57 0.00 2.88 430 0.23 0.04 0.39 0.00 2.56 538 0.35 0.06 0.51 0.00 2.88 Spin-off 650 0.00 0.00 0.00 0.00 0.00 430 0.00 0.00 0.00 0.00 0.00 538 0.00 0.00 0.04 0.00 1.00 Merger 650 0.00 0.00 0.00 0.00 0.00 430 0.01 0.00 0.12 0.00 1.00 538 0.00 0.00 0.00 0.00 0.00 New Affiliate 650 0.00 0.00 0.00 0.00 0.00 430 0.00 0.00 0.00 0.00 0.00 538 0.02 0.00 0.14 0.00 1.00
28
Table 3: Changes in RPT and EBITDA Before and After Ownership Changes
The median (Panel A) and the mean (Panel B) of paired-sample differences in RPTit, RPSit, RPPit, and EBITDAit
before and after net ownership change of various degrees (±5%p, ±10%p, and ±15%p) for each family group (heir, controlling shareholder, and other relatives). See Table 2 for the definitions of RPTit, RPSit, RPPit, and EBITDAit. The year of net ownership change is not used in the computation. Sample consists of nonfinancial firms from 26 chaebol groups (see Table 1) during 2000-2009. We exclude firms that underwent a spin-off or a merger from the sample. We also exclude newly added member firms during the sample period.
Panel A: Median of paired-sample differences
△Ownership
Panel B: Mean of paired-sample differences
△Ownership
29
Table 4: Ownership Change and Related-Party Transactions
Firm fixed effects regressions of related-party transactions (RPTit, RPSit, and RPPit) on treatment group dummy (TGi), treatment period dummy (TPit), their interaction (TGi x TPit), control variables, and year dummies. We also include time-varying dummies capturing spin-offs, mergers, and new affiliates, but their coefficients are suppressed. Treatment group dummy (TGi) is absorbed in firm FE. Sample include 36 treatment group firms that experienced major increase in heir’s ownership and 36 control group firms identified by covariate matching based on year, industry (4-digit code for manufacturing and 2-digit code for others), and asset size. t-values are reported in the parenthesis, and are based on standard errors clustered at the firm level. *, **, and ***
respectively indicate significance at 10%, 5%, and 1% levels. Significant results (at 10% level or better) are shown in boldface.
(1) (2) (3)
Related-party Transactions (RPTit)
Related-party Sales (RPSit)
Related-party Purchases (RPPit)
TPit -0.1324 -0.2667 -0.2387
(-0.93) (-1.38) (-0.92)
TGi x TPit 0.3906* 0.6021* 0.6158*
(1.80) (1.67) (1.75)
Firm size 0.6822*** 0.3782 1.0067***
(3.23) (1.50) (3.48)
Firm age 0.3279* 0.6744* 0.2891
(1.72) (1.84) (0.76)
Leverage -0.3840 0.2795 -0.6671
(-0.34) (0.23) (-0.39)
Constant Yes Yes Yes
Firm FE Yes Yes Yes
Year FE Yes Yes Yes
Observations 602 602 602
Number of firms 72 72 72
within R-sq 0.192 0.136 0.167
30
Table 5: Ownership Change, Related-Party Transactions, and Earnings
Firm fixed effects regressions of earnings (EBITDAit) on treatment group dummy (TGi), treatment period dummy (TPit), related-party transactions (RPTit, RPSit, or RPPit), their interactions, control variables, and year dummies. Treatment group dummy (TGi) is absorbed in firm FE. Sample include 36 treatment group firms that experienced major increase in heir’s ownership and 36 control group firms identified by covariate matching based on year, industry (4-digit code for manufacturing and 2-digit code for others), and asset size. t-values are reported in the parenthesis, and are based on standard errors clustered at the firm level. *, **, and ***
respectively indicate significance at 10%, 5%, and 1% levels. Significant results (at 10% level or better) are shown in boldface.
(1) (2) (3)
Dependent Var. EBITDAit
Types of RPT Related-Party Transactions (RPTit)
Related-party Sales (RPSit)
Related-party Purchases (RPPit)
TPit 6.6177* 6.1879*** 4.3488*
(1.84) (2.79) (1.75)
Firm age 2.6736*** 2.5072*** 2.6968***
(3.12) (3.07) (2.95)
Leverage -5.3704 -6.0444 -5.3130
(-1.38) (-1.64) (-1.42)
Cash holdings 2.8052 2.7519 4.6822
(0.60) (0.61) (0.94)
R&D expenditure -0.4417 -0.5094 -0.3162
(-0.39) (-0.49) (-0.30)
Advertising expenditure -2.3931** -2.5513** -2.2672**
(-2.12) (-2.12) (-2.33)
Constant Yes Yes Yes
Firm FE Yes Yes Yes
Year FE Yes Yes Yes
Observations 602 602 602
Number of firms 72 72 72
within R-sq 0.102 0.112 0.0956
31
Table 6: Ownership Change, Related-Party Transactions, and Dividends
Firm fixed effects regressions of dividends (DIVit) on treatment group dummy (TGi), treatment period dummy (TPit), related-party transactions (RPTit, RPSit, or RPPit), their interactions, control variables, and year dummies.
Treatment group dummy (TGi) is absorbed in firm FE. Sample include 36 treatment group firms that experienced major increase in heir’s ownership and 36 control group firms identified by covariate matching based on year, industry (4-digit code for manufacturing and 2-digit code for others), and asset size. t-values are reported in the parenthesis, and are based on standard errors clustered at the firm level. *, **, and ***
respectively indicate significance at 10%, 5%, and 1% levels. Significant results (at 10% level or better) are shown in boldface.
(1) (2) (3)
Dependent Var. DIVit
Types of RPT Related-Party Transactions (RPTit)
Related-party Sales (RPSit)
Related-party Purchases (RPPit)
TPit 0.4972 1.5026 0.0104
(0.33) (1.37) (0.01)
RPTit 0.1426 0.1693* 0.0893
(0.74) (1.84) (0.74)
TGi x TPit -2.2009 -3.7044*** -0.7998
(-1.14) (-2.72) (-0.48)
TGi x RPTit 0.1695 -0.0175 0.0007
(0.63) (-0.11) (0.00)
TPit x RPTit -0.0276 -0.1271 0.0144
(-0.21) (-1.33) (0.09)
TGi x TPit x RPTit 0.0811 0.2402* -0.0413
(0.47) (1.87) (-0.24)
Firm size 0.3718 0.4890 0.4414
(1.17) (1.52) (1.34)
Firm age 1.0798** 1.0415** 1.0873**
(2.20) (2.20) (2.18) Leverage -3.5381** -3.6166** -3.4048**
(-2.11) (-2.23) (-2.03)
Constant Yes Yes Yes
Firm FE Yes Yes Yes
Year FE Yes Yes Yes
Observations 602 602 602
Number of firms 72 72 72
within R-sq 0.124 0.127 0.117
32
Table 7: Ownership Change, Related-Party Transactions, and Group Control
Firm fixed effects regressions of marginal contribution to group control index (MCIit) on treatment group dummy (TGi), treatment period dummy (TPit), related-party transactions (RPTit, RPSit, or RPPit), their interactions, and year dummies. Treatment group dummy (TGi) is absorbed in firm FE. Sample include 36 treatment group firms that experienced major increase in heir’s ownership and 36 control group firms identified by covariate matching based on year, industry (4-digit code for manufacturing and 2-digit code for others), and asset size. t-values are reported in the parenthesis, and are based on standard errors clustered at the firm level. *,
**, and *** respectively indicate significance at 10%, 5%, and 1% levels. Significant results (at 10% level or better) are shown in boldface.
(1) (2) (3)
Dependent Var. MCIit
Types of RPT Related-Party Transactions (RPTit)
Related-party Sales (RPSit)
Related-party Purchases (RPPit)
TPit 0.1457 0.1285 0.0577
(1.10) (1.29) (0.49)
RPTit 0.0013 0.0006 0.0019
(0.19) (0.15) (0.36)
TGi x TPit -0.4203 -0.4640* -0.0036
(-1.24) (-1.93) (-0.02)
TGi x RPTit -0.0132 -0.0259 0.0140
(-0.58) (-1.47) (0.60)
TPit x RPTit -0.0127 -0.0121 -0.0049
(-1.06) (-1.35) (-0.38)
TGi x TPit x RPTit 0.0564* 0.0663** 0.0199
(1.67) (2.23) (1.02)
Constant Yes Yes Yes
Firm FE Yes Yes Yes
Year FE Yes Yes Yes
Observations 610 610 610
Number of firms 72 72 72
within R-sq 0.0972 0.113 0.0975
33
Table 8: Falsification Tests on Related-Party Transactions
Firm fixed effects regressions, identical to those reported in Table 4, but using treatment group dummy (TGi), where non-heirs (controlling shareholder or other relatives) become a major shareholder. Columns (1) – (3) ((4) – (6)) use 25 (30) treatment group firms that experienced major increase in controlling shareholder’s (other relative’s) ownership and 25 (30) control group firms identified by covariate matching based on year, industry (4-digit code for manufacturing and 2-digit code for others), and asset size. t-values are reported in the parenthesis, and are based on standard errors clustered at the firm level. *, **, and *** respectively indicate significance at 10%, 5%, and 1% levels. Significant results (at 10% level or better) are shown in boldface.
(1) (2) (3) (4) (5) (6) Treatment Group Controlling Shareholder Other Relatives
TPit -0.0445 -0.2236 -0.3127 0.0841 0.3954 -0.1440 Observations 379 379 379 473 473 473 Number of firms 50 50 50 60 60 60
within R-sq 0.186 0.135 0.201 0.408 0.249 0.293
34
Table 9: Falsification Tests on Earnings, Dividends, and Group Control
Firm fixed effects regressions, identical to those reported in Tables 5, 6, and 7, but using counterparties of the original treatment group firms (e.g. firms where heir become a major shareholder) as our new treatment group. TGi takes a value of 1 if firm is the counterparty of the original treatment group firm, and 0 otherwise. TPit takes a value of 1 if the original treatment group firm of firm experiences a major increase in heir’s net ownership at year t or before. Control variables are suppressed. We use 18 treatment group firms and 18 control group firms identified by covariate matching based on year, industry (4-digit code for manufacturing and 2-digit code for others), and asset size. t-values are reported in the parenthesis, and are based on standard errors clustered at the firm level. *, **, and *** respectively indicate significance at 10%, 5%, and 1% levels. Significant results (at 10% level or better) are shown in boldface.
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Dependent Variables EBITDAit DIVit MCIit
Types of RPT
TPit 4.8967** 2.7009** 3.4178** 2.6272 0.3328 -0.4909 -0.4464 -0.8437 -0.2535 (2.81) (2.31) (2.57) (0.65) (0.11) (-0.15) (-0.29) (-1.23) (-0.25)
35