Controlling shareholders' value, long-run firm value and short-term performance

We propose a new determinant of firm value within a business group: controlling shareholders' value (CSV), the value of controlling shareholders' stake in an affiliate divided by their stake in all affiliates. We posit that controlling shareholders focus attention on the high-CSV affiliates. Using data on Korean family-controlled business groups, we find that CSV has greater explanatory power for firm performance than traditional cash flow rights (CFR). We also find that, among affiliates with non-family CEOs, higher CSV is associated with higher Tobin's Q and lower EBITDA, indicating that controlling shareholders and non-family CEO have successfully addressed their principal-agent problem.