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The structure and formation of business groups : Evidence from Korean chaebols

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  • The structure and formation of business groups
  • Almeida, Heitor; Park, Sang Yong; Subrahmanyam, Marti; Wolfenzon, Daniel
  • National Bureau of Economic Research


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Title The structure and formation of business groups
Similar Titles
Sub Title

Evidence from Korean chaebols

Material Type Reports
Author(English)

Almeida, Heitor; Park, Sang Yong; Subrahmanyam, Marti; Wolfenzon, Daniel

Publisher

Cambridge:National Bureau of Economic Research

Date 2009-05
Series Title; No NBER Working Paper Series / 14983
Pages 48
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Original Format pdf
Subject Industry and Technology < Entrepreneurship
Holding National Bureau of Economic Research

Abstract

In this paper we study the determinants of business groups' ownership structure using unique panel data on Korean chaebols. In particular, we attempt to understand how pyramids form over time. We find that chaebols grow vertically (that is, pyramidally) as the family uses well-established group firms ("central firms") to set up and acquire younger firms that have low profitability and high capital requirements. Chaebols grow horizontally (that is, using direct family ownership) when the family acquires firms that are highly profitable and require less capital. Our evidence suggests that the (previously documented) lower profitability of pyramidal firms is partly due to a selection effect (e.g., the family optimally places low profitability firms in pyramids). To show this, we examine instances of large changes in the ownership structure of group firms. (The rest omitted)