The existence of the business groups has been associated with market failure in emerging economies, and thus their performance has been argued and found to have declined with development of market institutions surrounding them. This paper takes up this issue of long-term performance of the business groups but argues that it has also to do with the internal problems, such as changes in the ownership and governance structure. It finds, with the Korea data and new method and theoretical grounds, that the relative performance of the business groups, the Chaebols, had consistently declined over the 1980s and 1990s although they were more efficient than the non-Chaebol firms during the early 1980s. The results are robust to different estimation methods, and also to controls for the possible survivorship bias, industry composition, and scale effects. The paper explains the performance change by examining the decrease of the shares held by the controlling families and the associated aggravation of the agency problem leading to unjustifiable expansion drives.
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Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number
2004-3.
Find related papers by JEL classification: G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure D21 - Microeconomics - - Production and Organizations - - - Firm Behavior L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
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