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

Posted: 19 Sep 2008

See all articles by Gil S. Bae

Gil S. Bae

Korea University - Department of Accounting

Youngsoon Susan Cheon

Chung-Ang University - College of Business Administration

Jun-Koo Kang

Nanyang Business School, Nanyang Technological University

Date Written: September 2008

Abstract

Using earnings announcement events made by firms belonging to Korean chaebols, we examine propping within a chaebol. Consistent with the market's ex ante valuation of intragroup propping, we find that the announcement of increased (decreased) earnings by a chaebol-affiliated firm has a positive (negative) effect on the market value of other nonannouncing affiliates. The sensitivity of the change in the market value of nonannouncing affiliates to abnormal returns for the announcing firms is higher if the cash flow right of the announcing firm's controlling shareholder is higher. The sensitivity is also higher if the announcing firm is larger, performs well, and has a higher debt guarantee ratio.

Keywords: G14, G32, G34

Suggested Citation

Bae, Gil Soo and Cheon, Youngsoon Susan and Kang, Jun-Koo, Intragroup Propping: Evidence from the Stock-Price Effects of Earnings Announcements by Korean Business Groups (September 2008). The Review of Financial Studies, Vol. 21, Issue 5, pp. 2015-2060, 2008, Available at SSRN: https://ssrn.com/abstract=1270462 or http://dx.doi.org/hhn055

Gil Soo Bae (Contact Author)

Korea University - Department of Accounting ( email )

Seoul, 136-701
Korea

Youngsoon Susan Cheon

Chung-Ang University - College of Business Administration ( email )

221 Hukseuk-Dong
Department of Accounting
Seoul 156-756
Korea
822-820-5522 (Phone)
822-813-8910 (Fax)

Jun-Koo Kang

Nanyang Business School, Nanyang Technological University ( email )

Nanyang Avenue, Block S3-01b-54
Singapore, 639798
Singapore
(+65) 6790-5662 (Phone)
(+65) 6791-3697 (Fax)

HOME PAGE: http://www.nbs.ntu.edu.sg/nbs_corporate/divisions/bnf/index.asp

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