Stern School of Business
New York University
NBER Working Papers and Publications
|May 2009||The Structure and Formation of Business Groups: Evidence from Korean Chaebols|
with Heitor Almeida, Sang Yong Park, Daniel Wolfenzon: w14983
In this paper we study the determinants of business groups' ownership structure using unique panel data on Korean chaebols. In particular, we attempt to understand how pyramids form over time. We find that chaebols grow vertically (that is, pyramidally) as the family uses well-established group firms ("central firms") to set up and acquire younger firms that have low profitability and high capital requirements. Chaebols grow horizontally (that is, using direct family ownership) when the family acquires firms that are highly profitable and require less capital. Our evidence suggests that the (previously documented) lower profitability of pyramidal firms is partly due to a selection effect (e.g., the family optimally places low profitability firms in pyramids). To show this, we examine insta...
Published: Journal of Financial Economics Volume 99, Issue 2, February 2011, Pages 447–475 Cover image The structure and formation of business groups: Evidence from Korean chaebols ☆ Heitor Almeidaa, Corresponding author contact information, E-mail the corresponding author, Sang Yong Parkb, Marti G. Subrahmanyamc, Daniel Wolfenzond