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http://dx.doi.org/10.5762/KAIS.2016.17.9.112

Controlling Shareholders' Propping and Corporate Value in Korean Firms  

Kim, Dongwook (Research and Analysis Team, Busan Economic Promotion Agency)
Jung, Mingue (Department of Venture Business, Gyeongnam National University of Science and Technology)
Kim, Byounggon (Department of Business Administration, Changwon National University)
Publication Information
Journal of the Korea Academia-Industrial cooperation Society / v.17, no.9, 2016 , pp. 112-119 More about this Journal
Abstract
This study aims to examine propping by the controlling shareholders and the corporate value of Korean firms with agency problems and propping perspectives. Propping refers to a transfer of resources from a higher ownership firm to a lower ownership firm, in order to prevent the latter from going bankrupt. This study used a sample of 4,077 companies listed on the KRX data exchange from 2004 to 2014. We used proxy variables such as long-term supply contracts, asset and business sales, credit facilities, loans, and equity investments to affiliates as wealth transfer instruments of the controlling shareholders. We found that propping occurred by the equity investment of affiliates in Korean firms. Also, we found that the Korean firm's value was decreased by the affiliate equity investment.
Keywords
2SLS; Agency Problem; Corporate Value; Control Shareholder; Propping;
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