Financial Crisis and Transformation of Korean Business by Sea-Jin Chang

By Sea-Jin Chang

This ebook explores the ideas that chaebols--Korean company groups--have pursued via studying their constructions and assessing their functionality. It highlights the strengths of chaebols that permit their quick development, in addition to the weaknesses that waylaid them while the 1999 Asian quandary happened. Sea-Jin Chang asserts that the Korean government's restructuring efforts haven't been winning and demonstrates why measures that overhaul chaebols' monetary buildings and improve their structures are worthwhile. He predicts that they are going to emerge back as greater, extra concentrated worldwide avid gamers.

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

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It discussed their role in the Korean economy and reviewed their decline in performance since the late 1980s. It explained this decline as the result of capital inefficiency and the overvaluation of the won relative to the currencies of Japan and emerging competitors in developing countries. It also pointed out, however, that the most fundamental problem of chaebols lies in the void of effective governance mechanisms as Korea changes from a statecontrolled economy to a market-based economy. It also highlighted similarities between chaebols and organizational forms found in other countries.

It also effectively nationalized all banks by denying them the right to examine the validity of investment projects. Instead, the banks were to raise and allocate funds according to plans established by the Economic Planning Board. Most large-scale investments were allocated to only a few companies selected by the government. Through such means, the government virtually controlled Korean businesses and determined whether they succeeded or failed. It also influenced chaebols’ diversification strategy during this period, as it provided incentives to firms that it believed were able to carry out a project and punished poor performance by stripping firms of specific assets, and letting other companies acquire these properties.

3 They were initially taken by the government and then sold to individuals. Sales were based not on auctions but on the personal preference of high-ranking government officials. Friends and relatives of these officials thus had the best chance to buy such items (Kang, 1996) and reaped huge windfall profits by doing so since sales prices were based on the assets’ book values. Because inflation at this time was very high, buyers bought assets for only a fraction of their fair market value. Further, buyers had to pay only 10% upon purchase and then pay off the outstanding balance over 15 years without any interest.

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