Changing Performance of Business Groups over Two Decades: Technological Capabilities and Investment Inefficiency in Korean Chaebols<xref ref-type="fn" rid="fn1"></xref>

This article differentiates itself from the large volume of existing literature on business groups, such as Korean chaebols, in several aspects. First, it uses productive efficiency rather than financial efficiency as a performance measure. Second, it defines chaebols in three alternative ways and checks whether the results are robust. Third and most important, it explains the sources of the post-crisis change in the performance of Korean chaebols in terms of technological capabilities and investment inefficiency. This study finds that chaebols have become more efficient than non-chaebols in the post-crisis period compared with the pre-crisis period, that inefficiency in investment has always been critical in determining productive inefficiency, and that after the 1997 financial crisis Korean chaebols have improved their performance by reducing investment inefficiencies and enhancing technological capabilities. The results of this study are consistent with the often-acknowledged advantages of business group firms: first, technological capabilities can be shared among affiliated firms; and second, technological capabilities can be combined with project- or entry-execution capability. This article also shows that, with globalization and liberalization, technological capabilities have emerged to be more important in recent years than in the past when what was more important was exploiting market imperfections and artificial rents. (c) 2009 by The University of Chicago. All rights reserved..