Corporate Governance and Chaebol Reform in Korea

Abstract

A typical chaebol consists of many diversified and legally independent affiliates, all of which are controlled by a controlling shareholder family. This paper characterizes the chaebol governance structure as controlling shareholder managerialism to differentiate it from shareholder capitalism and stakeholderism. We examine the historical and institutional background that contributed to the persistence of the chaebol governance structure despite the gradual dilution of ownership. By regression analysis about the top 30 chaebols, we also find that the chaebols' pyramid control structure became to reveal its limitations around the early 1990s, and thus chaebol governance should have been improved even before the financial crisis. But this finding could not justify the way in which the government has initiated the governance reform since the crisis. Since the major problem of chaebol governance largely came from the lack of market disciplining mechanisms. the government should put more efforts in providing the appropriate environments where market mechanisms operate effectively.