Abstract
This article differentiates itself from the large volume of existing
literature on business groups, such as Korean chaebols, in several
aspects. First, it uses productive efficiency rather than financial
efficiency as a performance measure. Second, it defines chaebols
in three alternative ways and checks whether the results are robust.
Third and most important, it explains the sources of the post-crisis
change in the performance of Korean chaebols in terms of technological
capabilities and investment inefficiency. This study finds that chaebols
have become more efficient than non-chaebols in the post-crisis period
compared with the pre-crisis period, that inefficiency in investment
has always been critical in determining productive inefficiency,
and that after the 1997 financial crisis Korean chaebols have improved
their performance by reducing investment inefficiencies and enhancing
technological capabilities. The results of this study are consistent
with the often-acknowledged advantages of business group firms: first,
technological capabilities can be shared among affiliated firms;
and second, technological capabilities can be combined with project-
or entry-execution capability. This article also shows that, with
globalization and liberalization, technological capabilities have
emerged to be more important in recent years than in the past when
what was more important was exploiting market imperfections and artificial
rents.
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