Financial Crisis and Transformation of Korean Business Groups: The Rise and Fall of Chaebols

Half-title......Page 3
Dedication......Page 4
Title......Page 5
Copyright......Page 6
Contents......Page 7
Preface......Page 11
1 Introduction......Page 15
FROM ASIAN MIRACLE TO ASIAN CRISIS......Page 17
The Role of the Chaebol in the Korean Economy......Page 23
The Performance of Chaebols Prior to 1997......Page 28
The Korean Economy in Transition......Page 34
Chaebol as a Universal Phenomenon......Page 38
Conventional Theories on Business Groups......Page 42
Evolutionary Perspective and Structural Inertia......Page 45
The Structure of this Book......Page 52
2 The Evolution of Chaebols......Page 57
Inception of Chaebols after World War II......Page 59
The Economic Development Plans of the 1960s......Page 61
Chaebols’ Foray into the Heavy Equipment and Chemical Industries and the Formation of General Trading Companies in the 1970s......Page 67
Deregulation in the 1980s......Page 71
Liberalization and Globalization of the 1990s......Page 76
Hyundai Group......Page 77
Samsung Group......Page 78
LG Group......Page 80
Daewoo Group......Page 82
SK Group......Page 84
Taking Advantage of Government Policies......Page 85
Exploitation of Internal and External Capital Markets......Page 86
THE ENVIRONMENTAL SHIFT......Page 89
Increasing Influence of Foreign Capital......Page 90
3 Chaebols’ Diversified Business Structure......Page 93
Measuring Chaebols’ Diversification......Page 95
The Motivations for Diversification......Page 98
Sharing Technology, Brand, and Management Know-how......Page 101
Sharing Human Resources......Page 105
Internal Pool of Capital......Page 109
ORGANIZATIONAL STRUCTURE OF CHAEBOLS......Page 112
Multidivisional Structure......Page 113
Presidents’ Meetings......Page 117
Operating Efficiency......Page 119
Strategic Effectiveness......Page 121
4 Vertical Integration of Chaebols......Page 125
THE SCOPE OF CHAEBOLS' VERTICAL INTEGRATION......Page 127
The Advantages of Vertical Integration......Page 132
Disadvantages of Vertical Integration......Page 135
Cost Structure and Performance Implication of Vertical Integration......Page 137
Cross-Subsidization......Page 138
5 The Capital Structure of Chaebols......Page 145
The Korean Government’s Intervention......Page 147
Chaebols’ Financial Service Arms......Page 149
High Debt–Equity Ratios......Page 155
Determinants of Capital Structure of Chaebols......Page 160
Interaffiliate Loans......Page 163
Debt Payment Guarantees......Page 167
Cross-shareholding......Page 170
The Bankruptcies of Chaebols......Page 171
Stress upon Financial Institutions......Page 172
6 Chaebols’ Ownership and Governance Structure......Page 175
Trends of Family Ownership and Cross-shareholding......Page 177
The Mechanism of Cross-shareholdings......Page 178
THE CORPORATE GOVERNANCE SYSTEM IN KOREA......Page 184
Dual Role as Owner and Manager......Page 185
The Board of Directors......Page 186
Rights of Minority Shareholders......Page 188
Capital Market Control......Page 189
Lack of Accountability......Page 190
Expropriation Through Inside Trading......Page 192
Expropriation Through Internal Transfer Pricing Scheme......Page 195
7 The Restructuring of Chaebols......Page 201
THE RESTRUCTURING POLICY OF THE KOREAN GOVERNMENT......Page 203
RESTRUCTURING OF THE FINANCIAL SECTOR......Page 205
Financial Restructuring of Chaebols......Page 209
Business Restructuring......Page 218
ENHANCEMENT OF THE CORPORATE GOVERNANCE SYSTEM......Page 222
PERSPECTIVES ON THE RESTRUCTURING OF CHAEBOLS......Page 226
8 Conclusion......Page 231
The Financial Crisis as System Failure......Page 233
Structural Inertia of Chaebols......Page 234
Limitations of the Crisis-Driven Transformation......Page 237
Conglomerates in the United States and Europe......Page 238
Keiretsu Network in Japan......Page 241
Business Groups in the Developing Countries......Page 243
Foreign Investors and Creditors......Page 245
Strengthened Banks and Local Capital Markets......Page 247
Increased International Competition in Local Markets......Page 250
The Government......Page 251
The Future of Chaebols......Page 252
Implications for the Developmental State......Page 255
Appendix 1. Data Used in This Book......Page 259
Appendix 2. Comparing the Profitability of Group-affiliated Companies and Independent Companies......Page 263
PROFITABILITY: ROIC, measured at time t.......Page 269
Appendix 3. Profitability of Group-affiliated Firms......Page 278
Appendix 4. The Impact of Vertical Integration in Chaebols......Page 289
Appendix 5. Determinants of the Capital Structure of Chaebols......Page 298
Appendix 6. Profitability and Stock Ownership of Affiliates......Page 305
Appendix 7. Intragroup Business Transactions and Ownership Structures of the Top Five Chaebols......Page 313
Appendix 8. Key Economic Statistics,1960–2000......Page 323
CHAPTER 1......Page 325
CHAPTER 2......Page 328
CHAPTER 3......Page 329
CHAPTER 4......Page 330
CHAPTER 5......Page 331
CHAPTER 6......Page 333
CHAPTER 7......Page 334
CHAPTER 8......Page 336
APPENDIXES......Page 338
References......Page 341
Index......Page 359