Related-party transactions, chaebol affiliations, and the value of cash holdings

This study examines whether related-party transactions(RPTs) impact the value of firms’ cash holdings. Empirical results show that greater RPTs leads to lower value of cash holdings. In particular, decline in the value of cash holdings arising from RPTs is more pronounced in Korean chaebol firm than non-chaebol firms. Our findings suggest that a unique and complex corporate governance structure of chaebol firms makes it difficult for outside investors to monitor firms internal cash management decisions, resulting in negative valuation on cash holdings. This paper contributes to the extant literature by providing additional evidence that RPTs in chaebol firms with severe agency problems may lower value of cash holdings.