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The Evolution of Large Corporations in Korea

A New Institutional Economics Perspective of the Chaebol

Sung-Hee Jwa

Controversy still looms large both in public and academic circles as to the role of large corporations in sustainable economic growth. In this book, the new-institutional economics perspective is adopted to clarify and answer some of the most critical questions relating to the behaviour of large corporations in Korea, or the chaebol, and the role and impact of institutions on their behaviour.
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Chapter 6: Economic Institutions, Diversification and Performance: Empirical Evidences and Implications for Chaebol Behavior

A New Institutional Economics Perspective of the Chaebol

Sung-Hee Jwa


CHAPTER 6 25/9/03 9:17 AM Page 1 6. Economic institutions, diversification and performance: empirical evidence and implications for chaebol behavior 1. INTRODUCTION As has been seen in the previous chapters, economic concentration among the chaebol and the issue of the optimality of their business diversification has long been a subject of debate. Hence a proper evaluation of the current structure as well as the future direction of the optimal structural adjustment of the chaebol have both been given the highest priority for some time now. It is often argued that the chaebols are ‘excessively’ diversified and have grown over-large, and as a result, the Korean economy is said to suffer from excessive ownership and industrial concentration. To curb the propensity of the chaebol’s diversification to grow even larger, many initiatives such as policies to promote business specialization and ownership diffusion have been undertaken. However, most of these policies have so far taken the form of direct regulations often curbing the business activities of the chaebols. Apart from restrictions on entry, ownership structure, mutual assistance within the same business group and bank borrowing, the government has also instigated measures to encourage business specialization. However, these policies, in effect, have side-stepped the issue altogether as they do not attack the sources or underlying causes of the chaebols’ diversification behavior and have generally been regarded as unsuccessful in achieving their goals. The need for reform, nevertheless, remains an important issue deserving of careful deliberation and action, particularly in the era of globalization....

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