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Is Business Group Structure Inefficient? A Long-Term Perspective


Corresponding author: Chang-Soo Kim, School of Government and Business, Yonsei University. #234, Maeji-ri, Heungup-myon, Wonju, Kangwon-do 220-710, S. Korea, Tel: 01182-33-760-2331, Fax: 01182-33-760-2918, email:


This paper investigates the long-term value implication of business group affiliation. In order to secure comparability between business-group-affiliated firms and independent firms we employ the matching estimator technique, which selects firms with business characteristics most similar to chaebol firms to create a control group of firms. We find that the long-term performance of chaebol-affiliated firms is superior to that of control firms although the two groups are very similar at the beginning of the sample period. The differential performance between the two groups has been caused by changes in firm characteristics over time. Difference-in-difference estimators on important firm characteristics indicate that, over time, chaebol-affiliated firms become larger and more profitable, grow faster with more investments, have higher debt, and have more foreign ownership, which leads to a larger firm size. Chaebol firms also seem to benefit from tax shield and monitoring effects due to a higher level of debt, and avoid the entrenchment of owner–managers with a higher foreign ownership. However, regressions using difference variables indicate that business group affiliation by itself is not a value-increasing event.