earticle

영어

This paper examines how investor inertia might benefit the controlling families of business groups in a way that is distinct from explicit tunneling or diversion of resources. Based on a sample of new parent-subsidiary relationships created through spin-offs followed by stock-for-stock tender offers in Korean business groups, we find that family insiders actively tender their shares of the operating subsidiary in exchange for the new shares issued by the parent while outside investors remain largely passive, even though the new parent shares are likely to have been offered at a bargain. Controlling families on average gain 33% on their holdings or roughly USD 60 million relative to the pre-split value, two thirds of which consists of voluntary wealth transfers by inertial investors. Since new issues are more likely to be undervalued than overvalued, limits of arbitrage, rather than arbitrage, contributes to convergence in prices and controlling family’s wealth gain. Our results suggest that insiders may actively exploit behavioral aspects of the stock market to maximize their personal benefits.