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Is the Investment of Korean conglomerates Inefficient?

Author

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  • Chulsoo Kim

    (Sookmyung Women's University)

Abstract

Inefficient major conglomerates have been partly blamed for the recent economic crisis in Korea. Although theoretically conglomerates may or may not be efficient, it is popular to attribute many economic illnesses to major conglomerates in Korea. This paper examines if Korean major conglomerates are indeed inefficient by examining their investments. Following Scharfstein (1998), this paper compares major conglomerates with the other firms. Specifically, if major conglomerates are indeed inefficient, major conglomerates invest less in productive opportunities (high Tobin's q) and more in less productive opportunities (low Tobin's q) than the other firms. This paper finds that major conglomerates invest inefficiently and therefore concludes that the recent reforms of major conglomerates in Korea are justified.

Suggested Citation

  • Chulsoo Kim, 2002. "Is the Investment of Korean conglomerates Inefficient?," Korean Economic Review, Korean Economic Association, vol. 18, pages 5-24.
    • Handle: RePEc:kea:keappr:ker-200206-18-1-01
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    Citations

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    Cited by:

    1. Hong, Kiseok & Lee, Jong-Wha & Lee, Young Soo, 2007. "Investment by Korean conglomerates before and after the crisis," Japan and the World Economy, Elsevier, vol. 19(3), pages 347-373, August.
    2. Lee, Keun & Kim, Ji Youn & Lee, Oonkyu, 2010. "Long-term evolution of the firm value and behavior of business groups: Korean chaebols between weak premium, strong discount, and strong premium," Journal of the Japanese and International Economies, Elsevier, vol. 24(3), pages 412-440, September.
    3. Kineung Choo & Keun Lee & Keunkwan Ryu & Jungmo Yoon, 2009. "Changing Performance of Business Groups over Two Decades: Technological Capabilities and Investment Inefficiency in Korean Chaebols," Economic Development and Cultural Change, University of Chicago Press, vol. 57(2), pages 359-386, January.

    More about this item

    Keywords

    Conglomerates; investment; tobin's q;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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