We show that during the 1997 Korean financial crisis, chaebol firms with higher ownership
concentration by unaffiliated investors experience a smaller reduction in their share
value. Firms with higher disclosure quality and alternative sources of external financing
also suffer less. In contrast, chaebol firms with concentrated ownership by controlling
family shareholders experience a larger drop in the value of their equity. Firms
in which the controlling shareholders' voting rights exceed their cash flow rights,
borrow more from the main banks, and are highly diversified also have lower returns.
Finally, we find that downsizing (diversifying expansionary) actions during the crisis
have a positive (negative) effect on the value of chaebol firms. Our results suggest
that change in firm value during such a crisis is a function of firm-level differences
in corporate governance measures and owner-manager incentives.