Working Paper: CEPR ID: DP3364
Authors: Stijn Claessens; Joseph P.H. Fan; Larry Lang
Abstract: This Paper investigates the benefits and associated agency costs of using internal capital markets through affiliating with groups using data of two thousand firms from nine East Asian economies between 1994-96. We find that mature and slow-growing firms with ownership structures more likely to create agency problems gain more from group affiliation, while young and high-growth firms are more likely lose. Agency problems are important explanatory factors of firm value in economies outside Japan, but less so in Japan. Consistent with the literature, financially constrained firms benefit from group affiliation. Our results are robust to different time periods and estimation techniques.
Keywords: agency costs; emerging markets; groups
JEL Codes: G31; G32; K10; O34; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| group affiliation (D71) | firm value (G32) |
| financial constraints (H60) | firm value (G32) |
| agency problems (G34) | firm value (G32) |
| group affiliation (D71) | misallocation of resources (D61) |