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Financial Crisis and Transformation of Korean Business Groups

The Rise and Fall of Chaebols

Financial Crisis and Transformation of Korean Business Groups by Sea-Jin Chang
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Sea-Jin Chang argues that the Korean financial crisis of 1997 was due to the inertia of both the business groups known as chaebols and the Korean government which prevented adaptation to changing external environments. Once the Korean government stopped central economic planning and pursued economic liberalization in the 1980s, the transition created a void under which neither the government nor markets could monitor chaebols' investment activities. The intricate web of cross-shareholding, debt guarantees, and vertical integration resulted in extensive cross-subsidization and kept chaebols from shedding unprofitable businesses. The government's continued interventions in banks' lending practices created 'moral hazards' for both chaebols and banks. This treatment demonstrates how the structure of chaebols later inhibited other adaptations and for all practical purposes became nearly dysfunctional. The book argues that restructuring of chaebols should focus on improving corporate governance systems. After such restructuring, the author predicts, chaebols will re-emerge as stronger, more focused global players.
Cambridge University Press; April 2003
378 pages; ISBN 9780511058578
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Title: Financial Crisis and Transformation of Korean Business Groups
Author: Sea-Jin Chang
 
ISBNs
0511058578
9780511058578
9780521814355