Tunneling or value added? Evidence from mergers by Korean business groups

Kee Hong Bae, Jun Koo Kang, Jin Mo Kim

Research output: Contribution to journalArticlepeer-review

631 Scopus citations


We examine whether firms belonging to Korean business groups (chaebols) benefit from acquisitions they make or whether such acquisitions provide a way for controlling shareholders to increase their wealth by increasing the value of other group firms (tunneling). We find that when a chaebol-affiliated firm makes an acquisition, its stock price on average falls. While minority shareholders of a chaebol-affiliated firm making an acquisition lose, the controlling shareholder of that firm on average benefits because the acquisition enhances the value of other firms in the group. This evidence is consistent with the tunneling hypothesis.

Original languageEnglish (US)
Pages (from-to)2695-2740
Number of pages46
JournalJournal of Finance
Issue number6
StatePublished - Dec 2002
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics


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