How much does the business group matter in Korea?

Abstract

We partition the variances of profits of the companies associated with Korean business groups into business group-specific effects, industry effects, and affiliate company-specific effects, which roughly match corporate-parent effects, industry effects and business unit effects, respectively, in the extant literature. We find substantial corporate-parent effects (here, business group effects) along with industry effects and business unit effects (here, affiliate company-specific effects). This finding may indicate that business groups play an important role in developing countries by circumventing market inefficiencies. Our results also suggest that these effects tend to be smaller in large business groups and to decrease over time. Copyright (C) 2002 John Wiley Sons, Ltd.