Changing Performance of Business Groups over Two Decades: Technological Capabilities and Investment Inefficiency in Korean Chaebols

Abstract

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 bus...