Financial constraints and negative spillovers in business groups: Evidence from Korea

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We examine the negative spillover from one group-affiliated firm to other group -affiliated firms in the same business group, using credit raring downgrade announcement data in Korea. We hypothesize that the existence of controlling shareholders and internal capital markets is a major cause of the negative spillover. We find that the financial constraints of a group affiliated firm negatively affect the value of other group affiliates. Furthermore, we show that both the parent-subsidiary relationship and the credit rating difference between a downgrade firm and its group -affiliated firms affect the extent of negative spillover. In addition, our robustness test results support the argument that the internal capital market within a business group is a key factor in understanding negative spillovers. (C) 2016 Elsevier B.V. All rights reserved
Publisher
ELSEVIER SCIENCE BV
Issue Date
2016-09
Language
English
Article Type
Article
Keywords

FOUNDING-FAMILY OWNERSHIP; FIRM VALUE; CORPORATE GOVERNANCE; RATING CHANGES; STOCK-PRICES; PERFORMANCE; CRISIS; BOARD; BOND; ANNOUNCEMENTS

Citation

PACIFIC-BASIN FINANCE JOURNAL, v.39, pp.84 - 100

ISSN
0927-538X
DOI
10.1016/j.pacfin.2016.05.003
URI
http://hdl.handle.net/10203/213999
Appears in Collection
RIMS Journal Papers
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