earticle

영어

This paper examines how the market for corporate control can be misused by malicious corporate raiders to expropriate target minority shareholders and creditors when investor protection is poor. Our perspective is distinct from the conventional free cash flow theory where the central conflict of interests lies between bidder’s shareholders and managers. Using a large sample of publicly traded firms in Korea, we find that explicit looting through embezzlement or breach of fiduciary duty as well as forced delisting is much more common in firms that recently went through a change in control. This finding is robust to controlling for the factors that induced the control change in the first stage. Such misbehaviors are more likely in firms with more liquid assets and stable performance. Market reactions to changes in control are significantly negative for those firms that later become subject to embezzlement, breach of duty or forced delisting. These finding strongly suggest that the market for corporate control in poor investor protection environment may not function as a disciplining mechanism but rather as a potential tunneling channel which raiders take advantage of.