Ownership complexity and firm value: evidence from Korean chaebols

This study examines how ownership complexity affects firm valuations by analyzing Korean chaebols’ transition from opaque circular-shareholding to more transparent pyramidal structures between 2011 and 2018. Ownership complexity can obfuscate investors’ understanding of agency conflicts between controllers and minority investors. Simplifying ownership creates transparency about controller incentives and affects valuations through two channels: increasing earnings informativeness and enabling investors to update expectations about future fundamentals. Because these forces can oppose each other, simplification can create divergent valuation effects. We find that firms with tighter controller-minority incentive alignment gain value as investors discover better-than-expected governance, while firms with greater incentive conflict lose value as transparency reveals worse-than-expected agency problems. These effects are not driven by concurrent real changes in governance, monitoring, operations, or resource allocation. Governance reforms aimed at improving transparency can thus produce heterogeneous valuation outcomes, depending on what that transparency reveals.