Business Groups and Tunneling: Evidence from Brand Royalty Flows within Chaebol

This paper investigates the intragroup flows of brand royalties within large Korean business groups. We find that business group member firms pay a greater amount of brand royalties when the associated business groups adopt a holding company governance structure, consistent with the public allegation that chaebols tunnel wealth from member firms to holding companies that they directly control. However, member firms pay a smaller amount of brand royalties when their related party transactions (RPTs) are monitored, for example, when the firm is on (i) the watch list of an external watchdog agency for controlling shareholders’ unfair profit reaping from RPTs or when its board of directors internally operates (ii) a designated committee on RPTs or (iii) an audit committee. The results suggest that the alleged tunneling behavior of large business groups can be mitigated by external or internal monitoring on RPTs

Professors on the Board: Do They Contribute to Society Outside the Classroom?

According to our data, 38.5 % of S&P 1500 firms have at least one professor on their boards. Given the lack of research examining the roles and effects of academic faculty as members of boards of directors (professor–directors) on corporate outcomes, this study investigates whether firms with professor–directors are more likely to exhibit higher corporate social responsibility (CSR) performance ratings. Results indicate that firms with professor–directors do exhibit higher CSR performance ratings than those without. However, the influence of professor–directors on firm CSR performance ratings depends on their academic background—the positive association between the presence of professor–directors and firm CSR performance ratings is significant only when their academic background is specialized (e.g., science, engineering, and medicine). Finally, this positive association weakens when professor–directors hold an administrative position at their universities

Value Creation of Independent Directors with STEM PhD: Evidence from Target Shareholder Gains

This paper examines whether independent outside directors who hold a PhD in science, technology, engineering, and mathematics (i.e., STEM directors) enhance shareholder wealth in mergers and acquisitions. Using 772 mergers completed in U.S. between 2005 and 2014, we find that the market responds more favorably to M&A announcements when target firms have STEM directors, but not when their independent directors hold PhDs in other disciplines (e.g., business or law). In subsample tests, we find that the short-term announcement day premium from STEM directors is particularly pronounced for firms with higher R&D intensity, firms in high-tech industries, and firms located in high-tech cities. Further, we find that the short-term premium exists only when STEM directors??? academic discipline is in line with the target firm???s primary operation. Last, we find that target firms are more likely to be acquired by bidders in the same industry than in other industries and by public bidders than private bidders if target firms have STEM directors. Overall, our findings suggest that independent directors with STEM expertise enhance shareholder wealth owing to their technical advisory role in corporate innovation

Business groups and tunneling: evidence from corporate charitable contributions by Korean companies

This paper investigates whether corporate philanthropic decisions are associated with a firm’s listing status and business group affiliation. Analyzing a large sample of public and private firms in Korea, we find that (1) public firms make more charitable contributions than private firms and (2) business group-affiliated firms make more charitable contributions than non-affiliated firms. The results suggest that public firms, owing to greater public scrutiny, and business groups, owing to higher political costs, are encouraged to make more corporate charitable contributions. Further, we find that (3) greater corporate giving by public firms than private firms is more pronounced for business group-affiliated firms, compared with non-affiliated firms. The result is consistent with business groups’ strategic coordination of their affiliates’ philanthropic decisions to tunnel business group resources out to controlling shareholders who hold a larger portion of private affiliates than public affiliates

Demand for fair value accounting: The case of the asset revaluation boom in Korea during the global financial crisis

When the fair value accounting (FVA) option for property, plant, and equipment was introduced in the midst of the global financial crisis, a significant proportion of Korean firms elected FVA. We attribute this unusual boom in asset revaluations to the nation's culture of government intervention and civilian compliance, which was particularly espoused during this period of financial turmoil, and a foreseeable option to switch back to historical cost accounting. We find that among those firms whose debt-to-equity ratios are low, public firms opt for the FVA option more often than private firms, suggesting that the need to communicate fair value information with diversified equity holders is more important than the need to do so with creditors. In contrast, among those firms whose debt-to-equity ratios are high enough to warrant such unfavorable dispositions as new debt freezes and monitoring by regulators, we find no difference in the FVA choice between private and public firms. These findings imply that during the global financial crisis, private firms that rely heavily on debt financing have a strong incentive to utilize FVA to comply with government guidelines for the debt-to-equity ratio and to ease a potential hold-up problem by influential creditors.1