Corporate Transparency of Business Group Firms in the Absence of Internal Market Benefits

Abstract

Business group affiliation seems to make a firm more opaque. The benefits of group affiliation (internal market transactions) and the negative aspects of group affiliation (agency problems of group control) both may make group firms more opaque than non-group firms. Using the opacity index developed by Anderson, Duru, and Reeb (2009), this paper reports that Korean group firms are more transparent than non-group firms after the Asian financial crisis (1997–1998) and this leads to better performance of group firms. The improved transparency results from disappeared internal market benefits and diminished agency problems. These results are robust after controlling for the size of internal markets of groups, industry diversification, the existence of group inside financial institutions, and endogeneity.

Citation

Sung Kim, M. (2012), "Corporate Transparency of Business Group Firms in the Absence of Internal Market Benefits", Choi, J.J. and Sami, H. (Ed.) Transparency and Governance in a Global World (International Finance Review, Vol. 13), Emerald Group Publishing Limited, Leeds, pp. 39-67. https://doi.org/10.1108/S1569-3767(2012)0000013005