Date of Award
Spring 2024
Document Type
Dissertation
Degree Name
Doctor of Philosophy (PhD)
Department
Economics
First Advisor
Kortum, Samuel
Abstract
I study the role of business groups - collections of firms owned by a single family - in determining factor misallocation and aggregate productivity. One might expect that business groups improve allocative efficiency because profit-maximizing owners can allocate resources efficiently across their firms. Surprisingly, using evidence from Korea, an economy wherelarge business groups (chaebols) are prominent, I find the contrary: business groups appear to worsen misallocation. In the first chapter, I describe the history and institutional details of chaebols. In the second chapter, I present the empirical findings. I show, using firm-level data with business group ownership information, that factor misallocation, measured by the dispersion in total factor productivity revenue (TFPR), increased, as has the business group share of the economy. This dispersion arises not only from TFPR differences between business group and non-business group firms (the between margin) but also from differences within the same groups (the within margin). Using quasi-natural experiments (the death of founders), I show that when business groups break up, misallocation decreases. I explore the hypothesis that part of this misallocation can be explained by business group owners’ incentive to distort the ownership structure to reduce inheritance taxes. In the third chapter, I present a simple model of business groups and collateral constraints. While non-business group firms can only use firm assets as collateral, business group firms can also use owner-owned assets in other firms in the group as collateral. Consequently, business group firms are less financially constrained, which generates the between margin. Furthermore, firms in the same group differ in ownership shares, hence, in their ability to borrow, which leads to the within margin. I find that business groups can account for roughly one-third of the factor misallocation in the Korean economy.
Recommended Citation
Sung, Jihoon, "Business Groups and Misallocation: Theory and Evidence From Chaebols" (2024). Yale Graduate School of Arts and Sciences Dissertations. 1442.
https://elischolar.library.yale.edu/gsas_dissertations/1442
