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The Effect of Wedge on Implied Cost of Equity

소유지배괴리도가 자기자본비용에 미치는 영향

  • Choi, Dong-Kwon (College of Business Administration, Chonnam National University) ;
  • Choi, Sungho (College of Business Administration, Chonnam National University)
  • 최동권 (전남대학교 경영학과) ;
  • 최성호 (전남대학교 경영대학 경영학부)
  • Received : 2019.07.19
  • Accepted : 2019.08.20
  • Published : 2019.08.28

Abstract

This study examines the effect of the wedge between voting rights and cash flow rights of controlling shareholders on the implied cost of equity. Prior studies posit that controlling shareholder's voting rights exceeding cash flow rights causes expropriating minority shareholders. Using date from 793 group-affiliated Korean firms for 10 years from 2005 to 2016, the result shows that there is a positive and significant relationship between controlling shareholders' wedge and implied cost of equity. This result implies that investors regard the controlling shareholders' wedge as potential agency cost in which they require additional risk premium because controlling shareholders have a strong incentive to pursue their private interests trough tunneling practices.

Keywords

Wedge;Voting Rights;Cash Flow Rights;Implied Cost of Equity;RIM

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