Private benefits of control and firm leverage: An analysis of Korean firms

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. ? 2006 Springer Science + Business Media, LLC.
Publisher
Western Academic Publishers
Issue Date
2006-12
Language
ENG
Citation

REVIEW OF QUANTITATIVE FINANCE AND ACCOUNTING, v.27, no.4, pp.439 - 463

ISSN
0924-865X
URI
http://hdl.handle.net/10203/4623
Appears in Collection
MT-Journal Papers(저널논문)
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