Internal Capital Markets in Business Groups: Evidence from the Asian Financial Crisis

Heitor Almeida, Chang Soo Kim, Hwanki Brian Kim

Research output: Contribution to journalArticle

Abstract

This paper examines capital reallocation among firms in Korean business groups (chaebol) in the aftermath of the 1997 Asian financial crisis, and the consequences of this capital reallocation for the investment and performance of chaebol firms. We show that chaebol 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.

LanguageEnglish (US)
Pages2539-2586
Number of pages48
JournalJournal of Finance
Volume70
Issue number6
DOIs
StatePublished - Dec 1 2015

Fingerprint

Internal capital markets
Business groups
Asian financial crisis
Chaebol
Capital reallocation
Asian crisis
Equity
Profitability
Investment opportunities
Cash

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Internal Capital Markets in Business Groups : Evidence from the Asian Financial Crisis. / Almeida, Heitor; Kim, Chang Soo; Kim, Hwanki Brian.

In: Journal of Finance, Vol. 70, No. 6, 01.12.2015, p. 2539-2586.

Research output: Contribution to journalArticle

Almeida, Heitor ; Kim, Chang Soo ; Kim, Hwanki Brian. / Internal Capital Markets in Business Groups : Evidence from the Asian Financial Crisis. In: Journal of Finance. 2015 ; Vol. 70, No. 6. pp. 2539-2586
@article{19486deb3644439d87040ff5be5da889,
title = "Internal Capital Markets in Business Groups: Evidence from the Asian Financial Crisis",
abstract = "This paper examines capital reallocation among firms in Korean business groups (chaebol) in the aftermath of the 1997 Asian financial crisis, and the consequences of this capital reallocation for the investment and performance of chaebol firms. We show that chaebol 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.",
author = "Heitor Almeida and Kim, {Chang Soo} and Kim, {Hwanki Brian}",
year = "2015",
month = "12",
day = "1",
doi = "10.1111/jofi.12309",
language = "English (US)",
volume = "70",
pages = "2539--2586",
journal = "Journal of Finance",
issn = "0022-1082",
publisher = "Wiley-Blackwell",
number = "6",

}

TY - JOUR

T1 - Internal Capital Markets in Business Groups

T2 - Journal of Finance

AU - Almeida,Heitor

AU - Kim,Chang Soo

AU - Kim,Hwanki Brian

PY - 2015/12/1

Y1 - 2015/12/1

N2 - This paper examines capital reallocation among firms in Korean business groups (chaebol) in the aftermath of the 1997 Asian financial crisis, and the consequences of this capital reallocation for the investment and performance of chaebol firms. We show that chaebol 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.

AB - This paper examines capital reallocation among firms in Korean business groups (chaebol) in the aftermath of the 1997 Asian financial crisis, and the consequences of this capital reallocation for the investment and performance of chaebol firms. We show that chaebol 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.

UR - http://www.scopus.com/inward/record.url?scp=84946761509&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84946761509&partnerID=8YFLogxK

U2 - 10.1111/jofi.12309

DO - 10.1111/jofi.12309

M3 - Article

VL - 70

SP - 2539

EP - 2586

JO - Journal of Finance

JF - Journal of Finance

SN - 0022-1082

IS - 6

ER -