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Contents Introduction

This paper first compares productive efficiency of chaebols and non-chaebol firms in Korea. The first contribution of this paper lies in that we have treated each chaebol group as a single entity consisting of tens of affiliated firms. This is important since affiliated firms in a business group are not really independent firms in Korea. They are subject to centralized control, evaluation and resource allocation. Using a rigorous econometric technique and utilizing the advantage of panel data models, we have found that the average level of productive efficiency of chaebols is lower than that of nonchaebols although the difference is not significant. When we divide chaebols into the top 4 and the bottom 18 chaebols in terms of asset size, the top 4 chaebols are shown to be significantly less efficient than average non-chaebol firms. When we divide the non-chaebols into the superior and the inferior in terms of productive efficiency, chaebols are shown to be significantly less efficient than the superior non-chaebol firms.