The benefits and costs of group affiliation: Evidence from East Asia

This paper investigates the benefits and associated agency costs of using internal capital markets through affiliating with groups using data of 2000 firms from 9 East Asian economies. We find that mature and slow-growing firms with ownership structures more likely to create agency problems gain more from group affiliation, while young and high-growth firms lose more. Agency problems are important determinants of the distribution of internal markets value gains in economies outside Japan, but less so in Japan. Consistent with the literature, financially constrained firms benefit from group affiliation. Our results are robust to different time periods and estimation techniques.