Determinants of Family Ownership: The Choice between Control and Performance

This paper analyzes what determines ownership structure of family firms in Korea. Our analysis shows that control is as important a factor as performance in the determination of whether a family in Korea chooses to own a firm. The controlling family prefers to own shares of de facto holding companies because they provide control over affiliated companies and firms that perform well. The family, however, allows its affiliated companies to own more shares of firms that perform poorly and of firms that do not provide the family with power to control the firm. In addition, controlling families own fewer shares of firms that make bond investments in affiliated companies because bond holding does not provide control. We carry out logit regressions for firms without family ownership and for firms with a positive family ownership. The family chooses not to own shares regardless of a firm's performance if the firm does not provide significant control over affiliated companies. We also show that the family values its control more for closely held firms.

The Choice of Group Structure: Divide and Rule

This paper concerns the structure of Korean business groups. We investigate the factors that affect a controlling shareholder's decision regarding the structure of his business group and the location of its member firms, using financial and ownership data on conglomerate groups in Korea. We define new measures that represent the levels of vertical and circuitous structures of a group, and the location of member firms in the group. We empirically confirm that controlling shareholders strategically choose the structure of their business groups to secure control over the groups and to seek private benefit of control. The risk diversification and propping incentive of controlling shareholders is also found to affect the decisions.

Consistency between Predicted and Actual Bid-Ask Quote-Revisions.

This paper employs a "transaction" database to study whether observed quote revisions are consistent with those predicted by the adverse selection and inventory cost theories of the bid-ask spread. The authors find that actual quote revisions are consistent with the theoretical prediction in only 25 percent of the cases. Furthermore, quote-revision patterns are found to be strongly dependent on the level of the outstanding spread and, to a lesser extent, on the transaction size. These systematic patterns, unrelated to the inventory cost and adverse selection theories, are consistent with the effect on quote revisions of the limit order book and the minimum 1/8 price-change rule. Copyright 1991 by American Finance Association.

The Choice of Group Structure: Divide and Rule

September 13, 2005This paper concerns the structure of Korean business groups. We investigate the factors that affect a controlling shareholder's decision regarding the structure of his business group and the location of its member firms, using financial and ownership data on conglomerate groups in Korea. We define new measures that represent the levels of vertical and circuitous structures of a group, and the location of member firms in the group. We empirically confirm that controlling shareholders strategically choose the structure of their business groups to secure control over the groups and to seek private benefit of control. The risk diversification and propping incentive of controlling shareholders is also found to affect the decisions

Determinants of Family Ownership: The Choice between Control and Performance

Revision in April 2005This paper analyzes what determines ownership structure of family firms in Korea. Our analysis shows that control is as important a factor as performance in the determination of whether a family in Korea chooses to own a firm. The controlling family prefers to own shares of de facto holding companies because they provide control over affiliated companies and firms that perform well. The family, however, allows its affiliated companies to own more shares of firms that perform poorly and of firms that do not provide the family with power to control the firm. In addition, controlling families own fewer shares of firms that make bond investments in affiliated companies because bond holding does not provide control. We carry out logit regressions for firms without family ownership and for firms with a positive family ownership. The family chooses not to own shares regardless of a firm's performance if the firm does not provide significant control over affiliated companies. We also show that the family values its control more for closely held firms