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Determinants on the Workings of Internal Capital Market and Their Effects

  • Journal of Regional Studies and Development
  • Abbr : JRSD
  • 2013, 22(2), pp.127-164
  • Publisher : Institute for Poverty Alleviation and International Development: IPAID
  • Research Area : Social Science > Area Studies > Regional Studies in general > Comparative / Statistical Regional Studies

CHANG SOO KIM 1

1연세대학교

Accredited

ABSTRACT

Unlike the existing studies that provide indirect evidence on the workings of internal capital markets, this paper provides direct evidence using the cases that the Fair Trade Commission adjudicated to be unfair trading. The regression analysis shows that differences in total assets, liquidity, information asymmetry, leverage, profitability, and cash flows are the statistically significant determinants of share ownership of the largest shareholder. The largest shareholders invest in firms that are relatively bigger and have less information asymmetry and a higher profitability. They also tend to invest in firms with a higher leverage and lower liquidity and cash flows. The analysis of the change in the largest shareholder’s portfolio suggests that in the years of unfair trading the largest shareholders tried to protect the marginal returns by reducing investments in the beneficiary firms with a lower profitability. However, they do not increase investments in firms with a long-term growth potential, which implies that the largest shareholders pursue a rent-seeking. At the same time, they invest in small beneficiary firms with a high information asymmetry in an attempt to increase firm value by reducing costs of capital.

Citation status

* References for papers published after 2022 are currently being built.

This paper was written with support from the National Research Foundation of Korea.