Changing Corporate Governance in Korea: Rise of a Market for Corporate Control or the Strategic Adaptation of Chaebol?

Abstract

The Asian crisis at the end of the 20th century has brought many changes in the Korean economy and business organizations. In this paper, we focused on corporate acquisitions during the period 1997-2000. We draw theoretical insights from institutional theory, network theory, resource dependence, and financial economics. Taking advantage of detailed event-level data of mergers and acquisitions between 1997 and 2000, we apply hazard rate models to explain correlates of major acquisition offers. We were able to identify substantial amount of heterogeneity in the corporate acquisitions, and drew two major division lines for different types of acquisitions depending on who made offers: foreign/domestic and member/non-member of business group. Model estimation results show that the sets of variables affecting acquisition offers differ by the types of acquisitions. Acquisitions by business group members depend less on the market evaluation of target firms when compared to the acquisitions by foreign firms. Foreign firms are more likely to follow rules of market for corporate control in making decisions on acquisitions. These results provide partial support for the theoretical insights we examined in this paper.