Hyungseok Kim, Woochan Kim Executive Compensation: When a Firm is a Business Group Member (01 Feb 2015) Available at ECGI: http://ecgi.global/working-paper/executive-compensation-when-firm-business-group-member
This paper examines how executive pay is set when a firm is a business group member. Using Korea as a laboratory setting, we find that member firm?s cash compensation for its executives is positively linked to the stock performance of other member firms as well as its own. Further analyses reveal that this positive link to other members?
performance is consistent with the hypothesis of corporate resources being tunnelled from one member to another for the benefit of the controlling family. We find that this link is stronger to the performance of others that are more likely to benefit from tunneling (firms in which the controlling family has cash flow rights greater than those of the subject firm) and in firms that are more likely to suffer from tunneling (firms in which the controlling family has control-ownership disparity above the sample median).
Preemptive rights are thought to protect minority shareholders from cheap-stock tunneling by a controlling shareholder. We show that preemptive rights, while making cheap-stock tunneling more difficult, cannot prevent it when asymmetric...Read more
We analyze how risk sharing between a firm’s employees and owners depends on its competitors’ response to industry-wide shocks. Focusing on the electricity industry, we obtain a sample of firms with exposure to similar industry risks but...Read more
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This essay, prepared for a volume on related-party transactions (RPTs), explores the economic, legal and policy challenges associated with RPTs in state-owned enterprises (SOEs). We show that RPTs in SOEs differ from RPTs in privately owned...Read more