Private benefits of control and firm leverage: An analysis of Korean firms |
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Authors: | Jangkoo Kang Joon-Seok Kim |
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Institution: | (1) Graduate School of Management, Korea Advanced Institute of Science and Technology, 207-43 Cheongryangri-dong, Dongdaemoon-gu, Seoul, 130-722, Republic of Korea |
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Abstract: | This paper investigates the leverage choices of an entrenched controlling party. If debt effectively curbs the private benefits
of control, the controlling shareholder is given incentives to avoid debt. Using estimates of the private benefits of control
and financial statement data from selected Korean firms, we find that a controlling party with large private benefits tends
to lower debt. This relationship was concentrated after the Asian financial crisis. However, before the crisis, firms that
affiliated with Korean conglomerates, chaebols, used more debt as private benefits increased. A financial reform program triggered by the crisis seems to have actuated
the disciplining role of debt.
JEL Classification G32, G34 |
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Keywords: | Private benefits of control Capital structure Chaebols Financial crisis |
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