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Asian Review of Financial Research, Vol., No..
pp.1119~1159
pp.1119~1159
Infant Firms in Emerging Market : An Analysis of Stand-Alones vs. Subsidiaries
Soo Jin Kim Respectively, University of Virginia School of Law
Woojin Kim Associate Professor of Finance, Seoul National University Business School
Newly established manufacturing firms in Korea without any corporate shareholder participation ? stand-alones - exhibit significantly higher profitability and smaller asset size compared to those set up by corporate shareholders ? pyramidal subsidiaries. Pyramidal subsidiaries set up by large business groups or chaebols engage in more related party transactions generating more negative internal earnings relative to stand-alones. For pyramidal subsidiaries, revenues generated from affiliated firms are positively correlated with overall profitability, while expenses paid to affiliates are negatively correlated. Nevertheless, combined related party transactions adversely affect overall profitability of all infant firms, regardless of their initial ownership structure.
Soo Jin Kim
Woojin Kim
Newly established manufacturing firms in Korea without any corporate shareholder participation ? stand-alones - exhibit significantly higher profitability and smaller asset size compared to those set up by corporate shareholders ? pyramidal subsidiaries. Pyramidal subsidiaries set up by large business groups or chaebols engage in more related party transactions generating more negative internal earnings relative to stand-alones. For pyramidal subsidiaries, revenues generated from affiliated firms are positively correlated with overall profitability, while expenses paid to affiliates are negatively correlated. Nevertheless, combined related party transactions adversely affect overall profitability of all infant firms, regardless of their initial ownership structure.
Stand alone,Pyramidal subsidiary,Business group,Corporate governance,Related party transaction,Establishment,Korea
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