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Financial Crisis and Transformation of Korean Business Groups

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  • Chang,Sea-Jin
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    Abstract

    Sea-Jin Chang argues that the Korean financial crisis of 1997 was due to the inertia of both the business groups known as chaebols and the Korean government which prevented adaptation to changing external environments. Once the Korean government stopped central economic planning and pursued economic liberalization in the 1980s, the transition created a void under which neither the government nor markets could monitor chaebols' investment activities. The intricate web of cross-shareholding, debt guarantees, and vertical integration resulted in extensive cross-subsidization and kept chaebols from shedding unprofitable businesses. The government's continued interventions in banks' lending practices created 'moral hazards' for both chaebols and banks. This treatment demonstrates how the structure of chaebols later inhibited other adaptations and for all practical purposes became nearly dysfunctional. The book argues that restructuring of chaebols should focus on improving corporate governance systems. After such restructuring, the author predicts, chaebols will re-emerge as stronger, more focused global players.

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    Bibliographic Info

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    This book is provided by Cambridge University Press in its series Cambridge Books with number 9780521814355 and published in 2003.

    Order: http://www.cambridge.org/uk/catalogue/catalogue.asp?isbn=9780521814355
    Handle: RePEc:cup:cbooks:9780521814355

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    Web page: http://www.cambridge.org

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    Cited by:
    1. Saibal Ghosh, 2010. "Affiliation And Firm Performance: Evidence From Indian Business Groups," Manchester School, University of Manchester, vol. 78(3), pages 183-200, 06.
    2. Manuel Oechslin, 2006. "Creditor Protection and the Dynamics of the Distribution in Oligarchic Societies," IEW - Working Papers 264, Institute for Empirical Research in Economics - University of Zurich.
    3. Niklas Potrafke, 2007. "Social Security in Germany: A Prey of Political Opportunism?," Discussion Papers of DIW Berlin 677, DIW Berlin, German Institute for Economic Research.
    4. Lee, Keun, 2009. "How Can Korea be a Role Model for Catch-up Development?: A .Capability-based View," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
    5. Randall Morck, 2005. "How to Eliminate Pyramidal Business Groups The Double Taxation of Inter-corporate Dividends and other Incisive Uses of Tax Policy," NBER Chapters, in: Tax Policy and the Economy, Volume 19, pages 135-179 National Bureau of Economic Research, Inc.
    6. Yuan Lu & Jun Yao, 2006. "Impact of state ownership and control mechanisms on the performance of group affiliated companies in China," Asia Pacific Journal of Management, Springer, vol. 23(4), pages 485-503, December.
    7. Sea-Jin Chang, 2006. "Business groups in East Asia: Post-crisis restructuring and new growth," Asia Pacific Journal of Management, Springer, vol. 23(4), pages 407-417, December.
    8. Ludwig Bstieler & Martin Hemmert, 2010. "Trust formation in Korean new product alliances: How important are pre-existing social ties?," Asia Pacific Journal of Management, Springer, vol. 27(2), pages 299-319, June.
    9. Mario García Molina, 2010. "¿Disminuyo La Diversificación De Los Grupos Empresariales Colombianos Después De La Apertura?," DOCUMENTOS DE TRABAJO - ESCUELA DE ECONOMÍA 007659, UN - RCE - CID.
    10. Lee, Keonbeom & Peng, Mike W. & Lee, Keun, 2008. "From diversification premium to diversification discount during institutional transitions," Journal of World Business, Elsevier, vol. 43(1), pages 47-65, January.
    11. Pursey Heugens & Stelios Zyglidopoulos, 2008. "From social ties to embedded competencies: the case of business groups," Journal of Management and Governance, Springer, vol. 12(4), pages 325-341, November.
    12. Lee, Seung-Hyun & Beamish, Paul W. & Lee, Ho-Uk & Park, Jong-Hun, 2009. "Strategic choice during economic crisis: Domestic market position, organizational capabilities and export flexibility," Journal of World Business, Elsevier, vol. 44(1), pages 1-15, January.

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