A market-power based model of business groups (original) (raw)
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The structure and formation of business groups: Evidence from Korean chaebols
Journal of Financial Economics, 2011
In this paper we study the determinants of business groups' ownership structure using unique panel data on Korean chaebols. In particular, we attempt to understand how groups form over time. We find that chaebols grow vertically (that is, pyramidally) as the family uses well-established group firms ("central firms") to set up and acquire firms that have low pledgeable income (e.g., low profitability) and high acquisition premia. Chaebols grow horizontally (that is, using direct family ownership) when the family acquires firms that have high pledgeable income and low acquisition premia. We also examine the relative valuation of chaebol firms. We find that the group's central firms trade at a discount relative to other public group firms, and present evidence that suggests that this valuation discount is due to shareholders' anticipation of value-destroying pyramidal acquisitions by the central firms. Our evidence is consistent with the selection of firms into different positions in the chaebol. The evidence also suggests that the (previously documented) underperformance of pyramidal firms could be due to a selection effect (e.g., the family places low profitability firms in pyramids) and not to tunneling.
Market Structure and International Trade: Business Groups in East Asia
1993
In this paper we study the effect of market structure on the trade performance of South Korea, Taiwan, and Japan. We center our analysis on Korea and Taiwan, countries which have very different market structures: Korea has many large, vertically-integrated business groups known as chaebol, whereas business groups in Taiwan are smaller and horizontallyintegrated in the production of intermediate inputs. The exports of these countries to the United States are compared using indexes of product variety and "product mix", which are constructed at the 5-digit industry level. It is found that Taiwan tends to export a greater variety of products to the U.S. than Korea, and this holds across nearly all industries. In addition, Taiwan exports relatively more high-priced intermediate inputs, whereas Korea exports relatively more high-priced final goods. We argue that these results confirm the importance of market structure as a determinant of trade patterns.
Business groups in China: compared with Korean chaebols
2001
ABSTRACT This paper has compared the big business groups in China with both nongroup firms in China and big business groups in Korea, chaebols. The comparative analysis show that big business groups in China tend to have more state shares, be more heavily indebted, less profitable, and accumulating capital more slowly than non-group firms. This is some contrast to the Korean case that Chaebols tend to be more heavily indebted, to pursue faster growth at the expense of profitability, compared to non-chaebol firms.
We examine Korean chaebols to analyze the long term evolution of the costs and benefits associated with a diversified business group. We find that Korean chaebol-affiliated firms have shown some dramatic changes in the costs and benefits along the three time periods (1984-1988, 1990-1995, and 2001-2003). Korean chaebol-affiliated firms did not suffer a value loss relative to non-affiliated firms in the 1980s and did so in the 1990s, but in the post-crisis period, they are rather experiencing value gains. Chaebol-affiliated firms' value loss/gains hold even after controlling for the relatedness of the diversification present within the chaebol. To identify the causes of this dramatic changes, we checks whether chaebol firms: (1) pursue profit stability rather than profit maximization, (2) over-invest in low performing industries, (3) cross-subsidize the weaker members of their group, and (4) possess greater debt capacity and consequently enjoy lower tax burdens. Overall, in the 1980s chaebol firms has enjoyed various advantages including taxes but did not invest much excessively, but in the 1990s their performance decreased due to substantial over-investment, despite several advantages still holding. Now, after restructuring after the financial crisis, they (survived chaebols) have emerged as very profitable firms with less over-investment despite no longer tax advantages which show that they have become more transparent than before.
The costs (and benefits?) of diversified business groups: The case of Korean chaebols
Journal of Banking & Finance, 2003
We examine Korean chaebols to determine the costs and benefits associated with the operation of a diversified business group. We find that chaebol-affiliated firms suffer a value loss relative to non-affiliated firms. We observe that this value loss holds even after controlling for the relatedness of the diversification present within the chaebol. To identify the causes of this value loss, we obtain evidence suggesting that chaebol firms: (1) pursue profit stability rather than profit maximization, (2) over-invest in low performing industries, and (3) crosssubsidize the weaker members of their group. We do find however that chaebol firms possess greater debt capacity and consequently enjoy lower tax burdens. Nevertheless, because chaebols suffer an overall loss in value, we conclude that the costs associated with chaebol membership exceed its benefits.
The role and functioning of business groups in east Asia and Chile
2000
We compare group affiliation in seven East Asian countries and Chile, using data for more than 1,000 publicly traded firms. We document that 75% of listed firms are associated with groups in East Asia, but only 40% in Chile. We find evidence that group structures are used to diversify risks internally as firms' market risk is influenced not only by own characteristicssuch as size, price/book ratiobut also by group characteristics, especially in Chile. There are costs to groups, however. For East Asian countries, we find that group structures are used by controlling owners to expropriate other shareholders. On balance, it appears that business groups are not beneficial to shareholders.
2001
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Market Structure, Entry, and Performance in Korea
The Review of Economics and Statistics, 1990
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Journal of the Japanese and International Economies, 2010
Lee, Keun, Kim, Ji Youn, and Lee, Oonkyu-Long-term evolution of the firm value and behavior of business groups: Korean chaebols between weak premium, strong discount, and strong premium