Diversification, Concentration and Economic Performance: Korean Business
Groups
Review of Industrial Organization, 21 (3):
271-282 (2002)Keywords: Concentration; Conglomerates; Firm; Firms; Geographic Descriptors:
S. Korea; Geographic Region: Asia; Publication Type: Journal Article;
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for individual use..Abstract
The purpose of this paper is to analyze empirically some of the relationships
involving corporate diversification, concentration and economic performance
for a group of 25 of the largest Korean chaebols or business groups
over the period 1985-1995. Using Herfindahl-Hirschman indices of
inter-industry diversification and intra-group member firm concentration,
our results indicate that increased conglomerate diversification
does not affect chaebol profits whereas changes in internal member
firm concentration do. Of particular interest with respect to both
diversification and concentration are our findings that a quadratic
relationship exists between group profits and the number of member
firms, with both smaller and larger chaebols having higher profits
than intermediate size chaebols. A similar relationship also exists
with respect to group size measured in terms of total assets. Since
the number of member firms is included as an explanatory variable,
our results imply that profitable chaebols expand primarily within
their existing industries rather than by adding firms in new markets.