ScholarWorks@숙명여자대학교

초록

We examine the effect of a firm’s status in a pyramidal ownership structure of Korean business group on the relation between the firm’s investment and its cash flows. Controlling shareholders in a business group concentrate their cash ownership on the firms ranked at the top layer of the pyramid. Firms in the low pyramidal ranks are mostly owned by other member firms of the business group and still under the influence of the controlling shareholder. It gives controlling shareholders an incentive to allocate relatively less efficient investment opportunities to the firms ranked lower in the pyramid. Moreover, controlling shareholders might have an incentive to utilize the resources of a firm in the low layer of the pyramid for an opportunity to enhance their own private benefit. By measuring a firm’s rank in the ownership pyramid using the discrepancy between cash flow right and voting right of controlling shareholders, we find that the sensitivity of a firm’s capital expenditure to its cash flows from operation increases as the firm’s rank on the ownership pyramid declines. The results suggest that financial restriction is more binding in the firms of low ranks of the ownership pyramid because investors are more concerned about the wealth transfer as the firm is ranked lower in the pyramid.

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