Strategy, Structure and Performance of Korean Business Groups: A Transactions Cost Approach

Abstract

The authors use the transactions cost approach to analyze the diversification strategy and the resulting structure chosen by Korean business groups to overcome market imperfections prevalent in developing countries. Business groups that have multidivisional struc ture are thought to show superior economic performance because such s tructure reduces transactions costs arising from organizational failure. Also, major Korean business groups have a "relational structure, " showing both vertical integration and the characteristics of the conglomerate. The authors modify the model of R. E. Caves and M. Uekusa (1976), used for Japan, to obtain the empirical result tha t group-affiliated firms show superior economic performance. Copyright 1988 by Blackwell Publishing Ltd.

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