title={Investment and Cash Flows in Internal Capital Markets: Evidence from Korean Business Groups },
author={Yoon K. Choi and Seung Hun Han and Sangwon Lee},
journal={Multinational Finance Journal},
publisher={Multinational Finance Society; Global Business Publications},
keywords={investment; cash-flows; corporate governance; business groups},
abstract={We examine the extent of expropriation by controlling owners of business groups. Specifically, we investigate the investment behavior of Korean business groups’ (chaebols’) member firms with respect to cash flows of their own operations as well as other affiliated firms. We also explore the role of corporate governance in curtailing expropriation by investigating the impact of audit committees on investment/cash flow sensitivities. We find that high cash flow rights are associated with reducing overinvestment, while the investment sensitivity of chaebol firms to their own cash flows remains unaffected. By contrast, investments are significantly sensitive to cash flows of other affiliated firms in the business group with high cash flow rights. Furthermore, investment decisions appear to be more efficient among firms with audit committees than among those without. The results suggest that internal capital markets of chaebol firms are active and at least partly efficient in the post-Asian financial crisis period. .},