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Tunneling or Value Added? Evidence from Mergers by Korean Business Groups
Author(s) -
Bae KeeHong,
Kang JunKoo,
Kim JinMo
Publication year - 2002
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/1540-6261.00510
Subject(s) - chaebol , shareholder , mergers and acquisitions , business , shareholder value , stock price , stock (firearms) , value (mathematics) , enterprise value , monetary economics , corporate group , accounting , corporate governance , economics , finance , mechanical engineering , paleontology , machine learning , series (stratigraphy) , biology , computer science , engineering
We examine whether firms belonging to Korean business groups (chaebols) benefit from acquisitions they make or whether such acquisitions provide a way for controlling shareholders to increase their wealth by increasing the value of other group firms (tunneling). We find that when a chaebol‐affiliated firm makes an acquisition, its stock price on average falls. While minority shareholders of a chaebol‐affiliated firm making an acquisition lose, the controlling shareholder of that firm on average benefits because the acquisition enhances the value of other firms in the group. This evidence is consistent with the tunneling hypothesis.