How chaebol restructuring after the 1997 crisis has affected corporate decision and performance in Korea: debt financing, ownership structure, and investment

Korean chaebol firms, characterized by excessive debt financing and overinvestment, experienced restructuring after the 1997 crisis. By reducing debt financing and thus overinvestment, they tried to reorganize financing structure and ownership structure. Chaebols’ debt reduction turns out to have improved performance. However, polarization between chaebol and non-chaebol firms has become more significant. Even after the crisis, firms that give higher cash flows to a controlling shareholder take more capital investment, indicating that agency problems still exist within chaebols. Chaebol-affiliated firms continue to be more active in R&D than non-chaebol firms. However, the pattern is limited to the group of top 10 chaebols after the crisis. Abbreviations: KFTC: Korea Fair Trade Commission.