Restructuring of Family Firms after the East Asian Financial Crisis: Shareholder Expropriation or Alignment

We investigate whether controlling shareholders expropriate corporate resources during a financial crisis using the data of Thai firms. Our results are consistent with the argument of Friedman, Johnson, and Mitton (2003) that the propensity to tunnel and prop is higher for business groups in particular if they are organized in pyramids. Specifically, we find that firms that belong to the top 30 business groups implement a number of restructuring activities such as expansion, executive turnover, and dividend cuts, more often than non group firms. Among the business group firms, we find that firms with higher ratio of cash flow rights to voting rights are less likely to implement the following restructuring measures: downsizing, expansion, and executive turnover. Interestingly, even in the business group firms that are not organized in pyramids, debt increases the probability of operational restructuring. This evidence is consistent with the view that debt increases the incentives to prop. JEL classification: G32; G33; G34; P12; K12