Do Stakeholder Relations Matter for Chaebol Companies? Evidence from Korean Product Market Supply Contracts*∗∗

Abstract

In this study, we investigate the effect of supply contracts signed with Chaebol companies in order to analyse the certification effect of trading relationships with Chaebols on suppli-ers. We find that the suppliers suffering from information asymmetry can sacrifice the direct profits gained from a supply contract with a Chaebol group member contractee while pursuing certification for further growth. The valuation of suppliers with a Chaebol group member as the contractee is lower when the suppliers’ information asymmetry is higher. The results also show that the operational margins of the suppliers deteriorate after obtain-ing a supply contract with a Chaebol group member, whereas the sales increase significantly more than the contract amount. These results imply that the Chaebol groups play a role in the certification of the product market and help quality suppliers achieve greater recogni-tion.