• Title/Summary/Keyword: Control-Ownership Disparity

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The Effect of Control-Ownership Disparity on Cost Stickiness

  • Chae, Soo-Joon;Ryu, Hae-Young
    • Journal of Distribution Science
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    • v.14 no.8
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    • pp.51-57
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    • 2016
  • Purpose - If control-ownership disparity is large, managers will not actively reduce costs; rather, they will maintain unutilized resources or possess surplus resources even when sales decrease with the purpose of increasing personal utility from status, power, compensation, and prestige. These managers' utility maximizing tendencies cause cost stickiness. We examine whether asymmetric behavior related to costs becomes stronger when there is a large disparity between ownership and control rights. Research design, data, and methodology - We construct a regression model to examine the relationship between control-ownership disparity and cost stickiness. STICKY, a dependent variable representing cost stickiness is a value found using the method of Weiss (2010), and Disparity is an interest variable that shows control-ownership disparity. Results - This study is based from the unique situations in Korea, in which high control-ownership disparity is common in firms. Large control-ownership disparity was found to increase cost stickiness of corporations. Conclusions - The results of this study imply that controlling shareholders may be regarded as a threat to the interests of minority shareholders and corporate values especially when controlling shareholders have significant influence over managers or the power to make managerial decisions as owners of a corporation.

The Relationship between Ownership Control Disparity and Firm Value: Empirical Evidence from High-Technology Firms in Korea

  • KIM, Su-In;SHIN, Hyejeong
    • The Journal of Asian Finance, Economics and Business
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    • v.8 no.5
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    • pp.749-759
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    • 2021
  • We investigate the relationship between ownership control disparity and future firm value in high-technology industries, and whether the effect of ownership control disparity on future firm value is differentiated when high-tech industry firms belong to chaebol groups. Using 11,848 firm-year observations of Korean firms listed on the stock market from 2006 to 2019, we employ univariate analysis and Heckman 2 stage analysis to test our hypotheses. We define high-technology industries as ICT industries based on the Korean Standard Industrial Classification. We measure future firm value using average Tobin's q for the next three years and ownership control disparity using the shareholding ratio of affiliated companies. Our univariate test results show that mean of Tobin's q is higher in ICT firms than non-ICT firms and firms largely owned by affiliates. In multivariate test, we find that the ICT firms with higher ownership control disparity are positively associated with future firm value. However, this association is lessened when firms belong to a chaebol group. Based on our findings, we suggest ownership control disparity has an additional positive effect on future firm in high-technology industries. The negative impact of chaebol groups on the association suggests the possibility of diversification discount in business group.

Family Ownership and Firm Value : Perspective to Related-party Transaction and Wealth Transfer

  • Kim, Dong-Wook;Kim, Byoung-Gon;Youn, Myoung-Kil
    • Journal of Distribution Science
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    • v.15 no.4
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    • pp.5-13
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    • 2017
  • Purpose - This research analyzes the effects of Korean family ownership characteristics on firm value. The positive and negative effects of family ownership on Korean firm value were analyzed. If negative effects are evident, this research explores the factors that cause a decrease in firm value. Research design, data, and methodology - The study examined a total of 5,743 companies listed on the Korea Exchange from the period 2002 to 2012 using a panel data regression analysis. Result - An empirical analysis suggests that Korean family ownership diminishes firm value. Korean family firm value has been reduced when controlling shareholders are participated in management and pursue excessive wages, or make the management entrenchment effects associated with ownership-control disparity. When the controlling shareholders of family firms have increasing control rights over the shareholders' general meeting and the directors' board, the agency costs associated with seeking increasing executive wages or private benefits reduce firm value. Conclusions - This study has significance because it reveals the negative effect of family ownership in Korea on firm value. These negative effects can be the result of agency problems from controlling family shareholders seeking excessive wages or ownership-control disparity.

Control-Ownership Disparity and Executive Compensation (지배주주의 소유지배괴리도가 경영자 보상에 미치는 영향)

  • Cho, Young-Gon
    • Journal of the Korea Academia-Industrial cooperation Society
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    • v.14 no.11
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    • pp.5434-5441
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    • 2013
  • Using longitudinal data of 575 sample from 122 firms in large business conglomerates from 2001 to 2008, this study examines the impact of controlling shareholders' control-ownership disparity on executive compensation. The empirical study finds that controlling shareholders' control-ownership disparity is negatively related to the level of executive compensation and moderate negatively the relation between firm performance and executive compensation. This finding suggests that controlling shareholders' control rights in excess of ownership rights lead to decreased executive compensation in order to relieve the concerns of stakeholder about the potential agency costs of controlling shareholder, and have, on the other hand, entrenchment effects on the decision of executive compensation by decreasing its sensitivity on firm performance.

Control-Ownership Disparity and R&D Investment (소유-지배 괴리도와 연구개발투자)

  • Choi, Hyang-Mi;Cho, Young-Gon
    • Journal of the Korea Academia-Industrial cooperation Society
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    • v.12 no.12
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    • pp.5558-5563
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    • 2011
  • Using longitudinal data of 108 firms in large business conglomerates from 2001 to 2009, this study examines the impact of controlling shareholders' control-ownership disparity on R&D investment. The study finds that control-ownership disparity is negatively related to R&D intensity. This empirical result suggests that controlling shareholders' control rights in excess of ownership rights incent controlling shareholders' expropriation for their private interests, leading to decreased R&D investment which enhances firm value in the long term.

The Effect of Control-Ownership Wedge on Stock Price Crash Risk (소유지배 괴리도가 주가급락위험에 미치는 영향)

  • Chae, Soo-Joon;Ryu, Hae-Young
    • The Journal of Industrial Distribution & Business
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    • v.9 no.7
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    • pp.53-59
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    • 2018
  • Purpose - This study examines the effect of control-ownership wedge on stock crash risk. In Korea, controlling shareholders have exclusive control rights compared to their cash flow rights. With increasing disparity, controlling shareholders abuse their power and extract private benefits at the expense of the minority shareholders. Managers who are controlling shareholders of the companies tend not to disclose critical information that would prevent them from pursuing private interests. They accumulate negative information in the firm. When the accumulated bad news crosses a tipping point, it will be suddenly released to the market at once, resulting in an abrupt decline in stock prices. We predict that stock price crash likelihood due to information opaqueness increases as the wedge increases. Research design, data, and methodology - 831 KOSPI-listed firm-year observations are from KisValue database from 2005 to 2011. Control-ownership wedge is measured as the ratio (UCO -UCF)/UCO where UCF(UCO) is the ultimate cash-flow(control) rights of the largest controlling shareholder. Dependent variable CRASH is a dummy variable that equals one if the firm has at least 1 crash week during a year, and zero otherwise. Logistic regression is used to examine the relationship between control-ownership wedge and stock price crash risk. Results - Using a sample of KOSPI-listed firms in KisValue database for the period 2005-2011, we find that stock price crash risk increases as the disparity increases. Specifically, we find that the coefficient of WEDGE is significantly positive, supporting our prediction. The result implies that as controlling shareholders' ownership increases, controlling shareholders tend to withhold bad news. Conclusions - Our results show that agency problems arising from the divergence between control rights and cash flow rights increase the opaqueness of accounting information. Eventually, the accumulated bad news is released all at once, leading to stock price crashes. It could be seen that companies with high control-ownership wedge are likely to experience future stock price crashes. Our study is related to a broader literature that examined the effect of the control-ownership wedge on stock markets. Our findings suggest that the disparity is a meaningful predictor for future stock price crash risk. The results are expected to provide useful implications for firms, regulators, and investors.

Venture Capital and Corporate Transparency in the Newly Public Firms (벤처캐피탈 투자가 신규상장기업의 투명성 제고에 미치는 영향)

  • Cho, Sung-Sook;Lee, Hee-Woo
    • The Journal of the Korea Contents Association
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    • v.12 no.9
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    • pp.280-292
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    • 2012
  • In general, a venture capital invests in tech startups and helps them improve the corporate transparency through board of directors. With respect to venture capital investment and its impact on the corporate transparency of the newly public firms from 2004 to 2010 in Korea, we have made regression analysis. First, it was found that it was likely to be less transparent, the larger its asset size or the higher its debt ratio was. Second, lower level of ownership-control disparity resulted in higher transparency. Third, a shorter period to IPO and higher growth rate were more prominent in companies with lower degree of transparency. The above findings were not conclusive to prove whether or not venture capital directly increases the transparency level of its portfolio companies, but do insinuate the possibility of a negative impact on the transparency of its investee companies, as early IPO's were associated with less transparency. This is all the more persuasive as it was observed that companies with a lower level of transparency had generally raised more money from venture capitals, and that companies with a higher growth rate and/or higher PBR, have shown to be less transparent.

A study on the establishment and regional strunture of Seoul metropolitan region (서울대도시권역의 설정과 지역구조에 관한 연구)

  • ;;Lee, Hee-Yeon;Song, Jong-Hong
    • Journal of the Korean Geographical Society
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    • v.30 no.1
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    • pp.35-56
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    • 1995
  • During the last two decades, Korea has achieved remarkable economic growth. In this process the nation has become urbanized and industrialized. But we have also encountered widening regional disparity, housing shortage of larger cities, transportation congestion, environmental pollution and many other problems. Rapid increasing urbanization and continuous migration toward Seoul since the late 1960s have been one of the major concerns of government. Government has sought ways to moderate the population increase in Seoul. The regulation which include new town development near Seoul and dispersion strategies of higher education and other administration and living facilities outside of Seoul havemade a great expansion of the spatial influence of Seoul city. Seoul metropolitan reaion has evolved as the most powerful center of political and economical spaces. Generally within a metropolitan region, there exists a growing mutual interdependence economically, as well as socially between a central city and its surrounding area. Seoul metropolitan region manifests itself not only as a coherent system of urbanized regions, but also as an integral part of the daily urban system. The surrounding Gyunggi province and Seoul city become closely linked both economically and functionally, constituting true functlonai urban system. This study is primarily undertaken with the purpose of delineation of the sphere of influence of Seoul city in 1990. At the time of 1985, Seoul metropolitan region was delineated according to the result of the study which was performed by Korea Research Institute for Human Settlements. Afterward, the rapid speed of metropolitanization process with dramatic increase in mobility through the provision of wider transportation system across the Capital region have evolved, resulting in the great expansion of the spatial influence of Seoul city. So this study examines the expanded area of Seoul metropolitan regin during the period of 1985-90. In order to delineate Seoul metropolitan region, the indices of urbanization and functional linkage are selected. Variables included in the measurement of the urbanization level are agricultural structure, population characteristics, manufacturing and service industries, and cultural aspects such as newspaper circulation, the ratio of car ownership and piped water supply. Variables included in the measurement of functional linkage are commuting, shopping pattern, centralized service such as medical facilities and trade of agricultural products. The standardization method and factor analysis are employed in making the delineation of Seoul metropolitan region. According to the result of this study, 2 cities, 8 Eups and 46 Myuns are included Seoul metropolitan region in 1990. If we compare this delineated area in 1990 to that of 1985, we can find the distinctive pattern of expanded axes according to the main transportation routes such as Seoul-Suweon, Seoul-Gwangju, Seoul-Incheon. In 199O, all the Gyunggi province, except a few Myuns located at the north and northwest part of Gyunggi province, are included in Seoul metropolitan region. Furthermore, this study attempts to the analysis of regional structure of Seoul metropolitan region according to the functional characteristics of each city and Gun. Variables included in this analysis are the new residential function, manufacturing function, service function, education and infermation function, public facility function and agricultural function. Factor analysis and cluster analysis are employed in making regionalization. Seoul metropolitan reaion is subdivided into four subregions which reflect different functional specialization. The first group is the specialized region of newly formed residential function. The second group is the specialized reaion of manufacturing function. The third group is the specialized region of service function. And the fourth group has little specialized in terms of manufacturing, service, and residential function. But this region has some potentiality of development when Seoul metropolitan region grow continuously. Seoul metropolitan region accounted for 43% of national population, despite 11.8% of national land size in 1990. Although Seoul metropolitan region enjoys important agglomeration economies, it also has huge social cost in the form of transportation congestion, housing shortage, rapid increase of land value, environment pollution, and etc. Efficient metropolitan plan making is a vital element in promoting Seoul's economic development and providing high quality living environment at low cost. In the light of the result of this study, the outer ring of Seoul metropolitan region, especially northeastern part, are underdeveloped compared to overdeveloped southwestern area. It is needed to develop the guidelines for the implement of the growth control and management plan, inducing more balanced development for whole Seoul metropolitan reaion.

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