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http://dx.doi.org/10.5762/KAIS.2020.21.9.584

Related Party Transactions and Corporate Value: The Effect of Regulations against Controlling Shareholders' Expropriation in Korea  

Lee, Sang-Gyu (Department of Business Administration, Changwon National University)
Kim, Dong-Wook (Busan Economic Promotion Agency)
Kim, Byoung-Gon (Department of Business Administration, Changwon National University)
Publication Information
Journal of the Korea Academia-Industrial cooperation Society / v.21, no.9, 2020 , pp. 584-595 More about this Journal
Abstract
This study relates to the effect from enforcement of regulations in 2014 against controlling shareholder expropriation in Korean corporations. The relationship change between related party transactions (RPTs) and the corporate values of listed Korean corporations is analyzed for the five-year period before and after enforcement of the regulations (2009-2013 and 2014-2018). Three types of RPTs regarding long-term supply contracts, loans, and credit were adopted for analysis. Following are the results of a regression analysis with panel data that consist of 6,534 firm-year observations. First shown is that the enforcement of regulations affects the relationship between RPTs and corporate value. Specifically, for all corporations, the result implies that the purpose of expropriation is weakened, and the efficiency and transparency of transactions in corporations are enhanced due to enforcement of the regulations. Secondly, the extent to which the regulations exert influence on designated and non-designated corporations differs. Regulation enforcement seems to be more influential on non-designated corporations than on designated ones for the efficiency and transparency of transactions in the long-term contract type of RPT.
Keywords
Related Party Transaction(RPT); Expropriation; Controlling Shareholder; Tunneling; Corporate Value;
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