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Internal Capital Markets in Business Groups: Evidence from the Asian Financial Crisis
Author(s) -
ALMEIDA HEITOR,
KIM CHANGSOO,
KIM HWANKI BRIAN
Publication year - 2015
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/jofi.12309
Subject(s) - chaebol , financial crisis , business , financial system , monetary economics , profitability index , capital market , investment (military) , economics , finance , corporate governance , macroeconomics , politics , political science , law
ABSTRACT This paper examines capital reallocation among firms in Korean business groups ( c h a e b o l ) in the aftermath of the 1997 Asian financial crisis, and the consequences of this capital reallocation for the investment and performance of c h a e b o l firms. We show that c h a e b o l transferred cash from low‐growth to high‐growth member firms, using cross‐firm equity investments. This capital reallocation allowed chaebol firms with greater investment opportunities to invest more than control firms after the crisis. These firms also showed higher profitability and lower declines in valuation than control firms following the crisis. Our results suggest that chaebol internal capital markets helped them mitigate the negative effects of the Asian crisis on investment and performance.