Samsung Case Answer
– Capital structure: High debt to equity ratio generates higher tax shield for the chaebol in the whole
– Diversification of investment in unrelated business may reduce the overall risk of the chaebol and so reduce the cost of borrowing.
– With the internal capital market, the chaebol can maximize the capital resource to invest in strategic field for instance R&D
– Investment diversifications are not in line with financial rationality. The capital allocations are inefficient and in most of the case it serves the interest of the founding family.
– The founding family has ownership and control
– No external monitor
– The minority shareholders have few rights
– Lack of transparency
c) Governance issue:
– For minority shareholder: some corporate decisions will serve the interest of the founding family and not their interest.
– Minority shareholders suffer from the agency problem and tunneling
All figures are in Million of US dollar (except the ratio)