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

Heitor Almeida, Chang Soo Kim, Hwanki Brian Kim

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Pages (from-to)2539-2586
Number of pages48
JournalJournal of Finance
Volume70
Issue number6
DOIs
StatePublished - Dec 2015

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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