This paper investigates the judicial bias in favor of chaebols. The Korean judiciary favors chaebols (powerful family business groups), as convicted chaebol-related defendants receive on average 9.9% more jail-sentence suspensions and 19 month shorter jail terms than non-chaebol counterparts do. The leniency remains robust after controlling for the quality of defense attorneys and other sentencing factors. We hypothesize that this bias occurs because, (1) the judiciary worries that strict sentences against chaebol defendants may cause systemic risk; and (2) the court follows the civil law tradition of being generous to in-group transactions. The results support both hypotheses. The judiciary is generous for the highly leveraged and better performed firms. Controlling for the in-group transactions explains much of the bias. With great victories in courts, chaebol-related offenders justify their wrongdoings, arguing that illegal in-group transactions are in the interest of entire business group, not for their private gain.

Keywords: Law and Finance, Business Group, White-Collar Crime, Tunneling, Civil Law, Self- Dealing

JEL Classification: G34, K14, K42,