PUBLICATIONS & REPORTS

Contents Introduction

From the perspective of Penrose's theory of growth of firms, this paper, first, interprets the rapid growth with diversification by the chaebols as exploitation of growth opportunities and available resources, given the rents associated with the domestic market protection and subsidized loans from the state-controlled banks. Second, taking chaebols as a variant of the controlling minority structure firm, the agency costs of the chaebols are analyzed in terms of unfair expropriation of other minority shareholders and debt-holders like the banks. For this analysis, the paper examines ownership and finance structures, dividend payments and stock prices, and bankruptcy cases in chaebols. The paper argues that the changes in the external economic conditions since the mid 1980s contributed to increasing costs and reduced the benefits of chaebol-type firms, as evidenced by their declining profitability and eventually the 1997 crisis.