It is often said that “chaebols are bad”.
However, few people know exactly what mechanism or structure is the problem.
Min (2016) study: In the conglomerate structure, exploitation of minority shareholders occurs through legal rather than illegal channels.
Dissect those four structures.
Structure 1 — Amplification of control through circular shareholding
Company A → Company B → Company C → Hold shares in Company A again
Control of the entire group with a minority stake:
Controls dozens of affiliates with an owner stake of 10-20%
- Kim KS (2015) CMS structure: Demonstration of a mechanism of complete control with minority shares
- The Board of Directors prioritizes the overall interests of the group (=owner interests)
Impact on Minority Shareholders:
→ Each affiliate cannot make independent decisions
→ Possibility of forcing unfavorable transactions within the group
Structure 2 — Transfer of resources through internal transactions
Concentrating profits to specific affiliates through inter-affiliate transactions:
Affiliates with high ownership stake supply at a low price/purchase at a high price.
- Transfer of listed subsidiary profits to unlisted holding company
- Although it is a legal form of transaction, there is a loss to minority shareholders.
Yang (2017): Demonstration of Korean implementation mechanism of tunneling.
Structure 3 — Capital transfer through CB·BW
The most sophisticated exploitation mechanism:
① Owner-linked corporation is involved in designing CB issuance conditions
② Low conversion price + insertion of refixing clause
③ The corporation acquires CB → acquires a large amount of stocks under favorable conditions
④ Dilution of minority shareholders’ shares + realization of profit from owner-linked corporation
Heo Seo-young (2025): Demonstrates that minority shareholder wealth is systematically transferred in this structure.
Structure 4 — Dividend suppression and capital accumulation
Owners profit in two ways:
① Salary, bonus, severance pay (executive compensation)
② Detour transfer through affiliate transactions
Meanwhile, dividends are minimized:
In the name of “reserve for future investment”
- In reality, it is an internal reservation to strengthen the owner’s control.
- Korea’s dividend payout ratio is significantly lower than that of the international community.
Minority shareholders have no choice but to expect the stock price to rise.
→ The stock price rises as the owner wishes → In the end, there is no exit.
This is the essence of Korea Discount.
Foreign agencies are aware of these four structures.
Therefore, we apply a structural discount to Korean stocks.
Only individual investors don’t know.
No, even if I knew, there was no way to avoid it.
RaymondsRisk quantifies this structure and provides it to individual investors.
key message
Exploitation does not break the law.
Design the structure.
Reading that structure is relational risk.
■ Reference materials
Min (2016): Chaebol legal exploitation structure
- Kim KS (2015): CMS structure verification
- Yang (2017): Tunneling mechanism
- Seoyoung Heo (2025): CB conversion and loss of minority shareholders
- RaymondsRisk White Paper: https://www.konnect-ai.net/whitepaper
#relationalrisk #raymondsrisk #raymondsindex #konnectai
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