Changes in Korean Corporate Governance: A Response to Crisis

Abstract

A decade has passed since the outbreak of the Korean financial crisis in November 1997. One of the fundamental causes of the crisis was widespread corporate value destruction, especially among the family-controlled business groups known as chaebol. Before the crisis, these business groups routinely pursued growth and market share at the expense of profitability and shareholder value. For some of the chaebol, size added to their political influence, which could be used to tilt the playing field in their favor. Being bigger also meant better access to external financing and lower borrowing costs, thanks in part to the too big to fail legacy. But another important factor driving this value-destroying growth was the so-called private benefits of controlling a larger corporate empire to the controlling

shareholders, typically referred to in Korea as the owners. In addition to the consumption of perks, the chaebols owners commonly used tunneling and asset-grabbing schemes to transfer corporate value from their minority shareholders.