Corporate Investment and Governance in the East Asian Countries -Empirical Analysis on Family-Controlled Firms-

Using a firm-level data set of Indonesia, Korea, Malaysia, the Philippines, and Thailand, we examine the impact of family-controlled firms on corporate investment behavior. Our results present evidence that family-controlled firms, being the majority of all firms in our data set, face more severe internal financing constraints than non-family-controlled firms. Our findings suggest that in the East Asian countries the mechanism, which is commonly assumed to permit smoothly reallocating funds across investment projects through the internal capital markets within family-controlled group firms, does not work well and that family-controlled firms have some difficulty in financing from external capital markets. As a result, strict internal financing constraints on corporate investment appear in family-controlled firms.