This study examines the effect of business group, ownership disparity, and corporate governance on the value of excess cash using the business group (chaebols) data in Korea. Through the Fama and French (1998), we find that Korean chaebol firms have significantly higher value of excess cash compared to the non-chaebol firms, but the ownership disparity between cash flow right and control right of the controlling shareholders decreases the value of excess cash in chaebol firms. However, corporate governance enhances the value of excess cash in the whole samples of chaebol- and non-affiliated firms, and it also alleviates the negative effect of the ownership disparity in the value of excess cash of chaebol-affiliated firms. More specifically, we find that independency of the board of directors and audit committee enhance the value of excess cash in business group, and mitigates the negative effect of ownership disparity by controlling shareholders on the effect of excess cash on the frim value. Finally, we find that the impact of the use of excess cash on operating performance is significantly positive, and this positive effect is enhanced by corporate governance.
JEL Classification: G30, G32, G34
Keywords: Cash holdings, Corporate governance, Ownership disparity, Business group, expropriation, tunneling
