Chaebol Major Customers and Cost of Equity Capital
Asian Tax Journal Vol. 19 No. 3 (2018), pp. 93-117
Abstract
This paper examines whether chaebol major customers affects on implied cost of equity capital focusing on Korean stock market. In Korea, chaebol is the business conglomerate which might be great influence on Korean economy. Prior papers suggest that customer concentration risk is the fundamental risk which affect on cost of equity capital or future stock price volatility. So Dhaliwal et al.(2016) shows that customer concentration risk might higher implied cost of equity capital. However there is no research have been done regarding whether chaebol major customer increase or decrease firm’ cost of equity capital. So this paper needs to examine whether chaebol major customer which affect on cost of equity capital. Using 2009 to 2015. 1.651 firm－year observations, chaebol major customer is positively associated with cost of equity capital. This result suggest that chaebol major customer might be the possible risk factor for the firm which is closely related to firm risk. Accounting literature tries to find the determinants of the cost of equity capital which is important indicator for the firm’ internal rate of return. So accounting transparency, disclosure quality might affect on implied cost of equity capital and chaebol major customer might be the one determinant of the firm’ cost of equity capital. So this paper may shed some light with this rising accounting issue.
Keywords
- customer concentration
- chaebol major customer
- chaebol
- cost of equity capital
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