Characteristics and Economic Efficiency of the Venture Companies in Korea: Comparison with the Chaebols and Other Traditional Firms

Keun Lee ; Sungsoo Kim

Associate Professor, School of Economics, Seoul National University, Seoul 151-741, Korea, Tel: +82-2-880-6367, Fax: +82-2-886-4231 klee1012@plaza.snu.ac.kr
Graduate Student, School of Economics, Seoul National University, Seoul 151-741, Korea barama21@orgio.net

JEL Classification: C23, L11, O12

Abstract

This paper focuses on the emergence of a new style of firms in the Korean economy, so-called venture companies, and provides a comparative analysis of the behavior and economic efficiency of the venture companies relative to chaebols and other old firms listed in the Korea Stock Exchange. The paper employs an econometric technique to compare the productive efficiency of ventures, chaebols and non-chaebol firms in Korea, using panel data covering the 1996-9 period. The paper finds that the average level of productive efficiency of the ventures is the highest among the four types of firms compared, such as chaebols and non-chaebols in the KSE, and non-ventures in the Kosdaq market. The efficiency comparison suggests the following order of efficiency among the four subgroups of firms from the best to the worst; ventures, non-ventures, non-chaebols, and chaebols. The paper also finds that the estimated productive efficiency is an important determinant of profitability. When we control for productive efficiency, the capital-labor ratio, the debt-equity ratio, and asset growth, ventures' profitability is shown to be significantly higher than that of others firms.

Keywords:

Ventures, Chaebols, Productive efficiency, Stochastic production function

Acknowledgments

Earlier versions of this paper was presented at the 2000 EAEA International Conference held in Singapore, and at the 8th SJE International Symposium, held in Seoul, August 25, 2000. The authors would like to thank professor Taehong Jin for useful comments for revision.

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