Tunneling or Value Added? Evidence from Mergers by Korean Business Groups

Posted: 2 Aug 2003

See all articles by Kee-Hong Bae

Kee-Hong Bae

York University - Schulich School of Business

Jun-Koo Kang

Nanyang Business School, Nanyang Technological University

Jin-Mo Kim

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Abstract

We examine whether firms belonging to Korean business groups (chaebols) benefit from acquisitions they make or whether such acquisitions provide a way for controlling shareholders to increase their wealth by increasing the value of other group firms (tunneling). We find that when a chaebol-affiliated firm makes an acquisition, its stock price on average falls. While minority shareholders of a chaebol-affiliated firm making an acquisition lose, the controlling shareholder of that firm on average benefits because the acquisition enhances the value of other firms in the group. This evidence is consistent with the tunneling hypothesis.

Suggested Citation

Bae, Kee-Hong and Kang, Jun-Koo and Kim, Jin-Mo, Tunneling or Value Added? Evidence from Mergers by Korean Business Groups. Available at SSRN: https://ssrn.com/abstract=369716

Kee-Hong Bae (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
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Jun-Koo Kang

Nanyang Business School, Nanyang Technological University ( email )

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Singapore
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Jin-Mo Kim

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

Janice H. Levin Bldg., Room 121
94 Rockafeller Road
Piscataway, NJ 08854-8054
United States

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