Intra-Group Propping: Evidence from the Stock-Price Effects of Earnings Announcements by Korean Business Groups

Tax avoidance, cost of debt and shareholder activism: Evidence from Korea

“…On the other hand, Bae et al (2008) find that the announcement of increased (decreased) earnings over the previous year by a chaebol-affiliated firm has a positive (negative) effect on the abnormal returns of the value-weighted portfolio of other non-announcing affiliates in the same group, as well as on those of each individual non-announcing affiliate, suggesting the existence of intra-group propping behavior.…”

“…It also takes advantage of managerial opportunism for private benefits. In particular, the extensive arrangement of a pyramidal, or multi-layered, shareholding agreement in chaebols inspires tunneling (Bae et al, 2002;Baek et al, 2006) or propping (Bae et al, 2008). Bae et al (2002) indicate that when a chaebol-affiliated firm makes an acquisition, its stock price, on average, falls.…”

Conflict of Interest or Information Sharing? Evidence from Affiliated Analyst Performance in Korea*

“…Further, Bae, Cheon et al’s (2008) examination of earnings announcements by a firm belonging to a Korean chaebol reveals that the announcement of increased (decreased) earnings over the previous year by a chaebol‐affiliated firm has a positive (negative) effect on the abnormal returns of the value‐weighted portfolio of affiliates in the same group. This finding is an indication of earnings‐related intragroup propping behavior 5…”

“…Mexican business groups (La Porta, Lopez-de-Silanes, and Zamarripa 2003); in Malaysia, Indonesia, Thailand, and Korea during the 1997-1998 Asian financial crisis (Mitton 2002); in Japanese, Korean, and Thai group firms in mutual insurance (Khanna and Yafeh 2005); and in Indian business groups (Gopalana, Nandab, and Seruc 2007). Further, Bae, Cheon et al's (2008) examination of earnings announcements by a firm belonging to a Korean chaebol reveals that the announcement of increased (decreased) earnings over the previous year by a chaebol-affiliated firm has a positive (negative) effect on the abnormal returns of the value-weighted portfolio of affiliates in the same group. This finding is an indication of earnings-related intragroup propping behavior.…”

Business Groups in Emerging Markets: Paragons or Parasites?

“…They find empirical evidence supporting this conjecture. See also Bae, Cheon, and Kang (2004) which is discussed in the next section. In passing, note that if groups were really a mechanism of mutual insurance, it would be natural to expect them to consist of mostly small firms, in contrast with the figures in Table I. membership and patterns of foreign direct investment (FDI), finding limited evidence for the existence of such a channel.…”