The value of official business group affiliation: Evidence from a change in Korean chaebol designation policy

The Korean government doubled the total assets threshold for its large business group (chaebol) designation policy in 2016. Exploiting this policy change, I examine the value implications of a firm's chaebol affiliation. I show that firms affiliated with business groups that had become non-chaebols because of the policy change experienced substantial decreases in value and investment. Further analysis suggests that these results are partly driven by corporate governance features and increased financial frictions. Short-run stock market reactions to announcements regarding the policy change did not predict its long-term value implications.