Why Are East Asian Business Groups so Common?

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Why Are Business Groups More Common In East Asia? It is thought that since the early 1960’s business groups have been a vital asset to the industrialization and economic growth of East Asian Countries. A ‘business group’ is a group of legally independent firms bound together in a formal or informal way. They have shown extreme rapid growth throughout East Asia, and have become a very controversial topic when relating to East Asia’s financial development, often being referred to as “paragons or parasites”. There are many proposed features of business groups, both positive and negative, that have resulted in their rapid formation and substantial growth in Asia. During East Asia’s early economic development, the main capital markets…show more content…
This allows for the act of tunnelling, which is a way of directing company assets and future business towards core owners so they can retain control over the country’s corporate sectors with low cash flows. Tunnelling methods such as providing low interest rates, selling assets, lowering market prices, technology licensing and joint ventures, means dominant share holders can have the direct benefit of using retained earnings for personal gain at a minority shareholders expense, hindering their development in capital markets. Not only this, but growth has been linked to diversification, a consequence of expropriation, and its impact on organisational performance. However, this theory is conflicting because structural characteristics, resulting from family ownership, can decrease the popularity of business groups in terms of outside investors, and complex company linkages can relate to inefficient investment, unreliable accounting and possible inadequate managers through inheritance. The Korean “Chaebol” is an example of a vertically organized pyramidal business group still controlled by a number of founding families. The Chaebol , contains many well known successful companies such as Samsung, LG and Hyundai and consists of centralized ownership,
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