The Value of Cash Holdings, Ownership Disparity, and Corporate Governance: Evidence from Korean Business Groups

Abstract

This study examines the impacts of business group affiliation, ownership disparity, and corporate governance on cash holdings and the value of excess cash of firms, using business group data from Korea, where such organizations are called “chaebols.” We find that Korean chaebol-affiliated firms have lower (higher) cash holdings (value of excess cash) compared to non-chaebol-affiliated firms; however, ownership disparity increases (decreases) cash holdings (value of excess cash) in chaebol firms. Furthermore, corporate governance enhances the value of excess cash and alleviates the negative effect of the ownership disparity in cash value for chaebol firms.

Keywords: Cash holdings, Corporate governance, Ownership disparity, Business group

JEL Classification: G30, G32, G34