Financial Crisis and Transformation of Korean Business Groups: The Rise and Fall of Chaebols PDF
Preview Financial Crisis and Transformation of Korean Business Groups: The Rise and Fall of Chaebols
This page intentionally left blank Financial Crisis and Transformation of Korean Business Groups ThisbookarguesthattheKoreanfinancialcrisisof1997wasdueto the inertia of both the business groups known as chaebols and the Koreangovernment,whichpreventedadaptationtochangingexternal environments.AftertheKoreangovernmentstoppedcentraleconomic planningandpursuedeconomicliberalizationinthe1980s,thetran- sitioncreatedavoidunderwhichneitherthegovernmentnormarkets couldmonitorchaebols’investmentactivities.Chaebolspursuedam- bitiousexpansionsthatoftenlackedastrongeconomicrationale.The intricatewebofcross-shareholding,debtguarantees,andverticalin- tegrationresultedinextensivecross-subsidizationandkeptchaebols from shedding unprofitable businesses. The government’s continued interventionsinbanks’lendingpracticescreated“moralhazards”for bothchaebolsandbanks. Thistreatmentdemonstrateshowthestructureofchaebols,which wasonceoptimalfortheirrapidgrowth,laterinhibitedotheradapta- tionsandforallpracticalpurposesbecamenearlydysfunctional.The bookarguesthatrestructuringofchaebolsshouldfocusonimproving corporategovernancesystems.Aftersuchrestructuring,theauthorpre- dicts,chaebolswillreemergeasstronger,morefocusedglobalplayers. Sea-JinChangisProfessorofBusinessAdministrationatKoreaUni- versity. Previously, he was a faculty member at the Stern School of BusinessatNewYorkUniversity.Hehasalsoheldvisitingappoint- mentsatStanfordUniversityandINSEAD,France.Priortohisdoc- toralstudyattheWhartonSchooloftheUniversityofPennsylvania,he workedforlargetelecommunicationcompaniesinKoreaandJapan. Professor Chang’s research focuses on understanding the process ofcreatingoperatingsynergiesamongdiversifiedlinesofbusinessand buildingastronglocalorganizationafterforeignentry.Hisresearchhas beenpublishedinjournalssuchasReviewofEconomicsandStatistics, JournalofIndustrialEconomics,JournalofManagementStudies,and theAcademyofManagementJournal.Hesitsontheeditorialboardsof severalleadingjournalsinstrategyandinternationalbusiness.Hehas alsowrittenseveraltextbooksinstrategyandinternationalbusiness. Tomyteachersandcolleagues Financial Crisis and Transformation of Korean Business Groups The Rise and Fall of Chaebols SEA-JIN CHANG KoreaUniversity Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo Cambridge University Press The Edinburgh Building, Cambridge , United Kingdom Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521814355 © Sea-Jin Chang 2003 This book is in copyright. Subject to statutory exception and to the provision of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published in print format 2003 isbn--13 978-0-511-06490-6 eBook (NetLibrary) isbn--10 0-511-06490-X eBook (NetLibrary) isbn--13 978-0-521-81435-5 hardback isbn--10 0-521-81435-9 hardback Cambridge University Press has no responsibility for the persistence or accuracy of s for external or third-party internet websites referred to in this book, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate. Contents Preface pageix 1 Introduction 1 FromAsianMiracletoAsianCrisis 3 Chaebols:TheKoreanBusinessGroups 9 TheTheoreticalFrameworkofthisBook 24 2 TheEvolutionofChaebols 43 TheDevelopmentofChaebolsinKorea 45 BriefHistoriesoftheTopFiveChaebols 62 TheGrowthStrategyofChaebols 70 TheEnvironmentalShift 75 3 Chaebols’DiversifiedBusinessStructure 79 TheExtentofChaebols’Diversification 81 IntragroupResourceSharing 87 OrganizationalStructureofChaebols 98 DiversificationandEconomicPerformance 105 4 VerticalIntegrationofChaebols 111 TheScopeofChaebols’VerticalIntegration 113 v vi Contents MotivesforVerticalIntegration:ProsandCons 118 PerformanceImplicationsofChaebols’ VerticalIntegration 123 5 TheCapitalStructureofChaebols 131 FinancialMarketEnvironmentsinKorea 133 CapitalStructureofChaebols 141 Chaebols’InternalCapitalMarketsand Cross-subsidization 149 CollapseofChaebolsandFinancialInstitutions DuringtheCrisis 157 6 Chaebols’OwnershipandGovernanceStructure 161 CharacteristicsoftheOwnershipStructure ofChaebols 163 TheCorporateGovernanceSysteminKorea 170 AgencyProblemsinChaebols 176 7 TheRestructuringofChaebols 187 TheRestructuringPolicyoftheKorean Government 189 RestructuringoftheFinancialSector 191 RestructuringoftheCorporateSector 195 EnhancementoftheCorporateGovernance System 208 PerspectivesontheRestructuringofChaebols 212 8 Conclusion 217 TheCrisisandtheFallofChaebols:ASummary 219 BusinessGroupsinOtherCountries 224 TheTamingofChaebols 231 TheFutureofChaebolsandtheDevelopmentalState 238 Contents vii Appendixes 1. DataUsedinthisBook 245 2. ComparingtheProfitabilityofGroup-affiliated CompaniesandIndependentCompanies 249 3. ProfitabilityofGroup-affiliatedFirms 264 4. TheImpactofVerticalIntegrationinChaebols 275 5. DeterminantsoftheCapitalStructureofChaebols 284 6. ProfitabilityandStockOwnershipofAffiliates 291 7. IntragroupBusinessTransactionsand OwnershipStructuresoftheTopFiveChaebols 299 8. KeyEconomicStatistics 309 Notes 311 References 327 Index 345
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