Journal of Business Ethics

, Volume 92, Issue 1, pp 49–62 | Cite as

South Korean Chaebols and Value-Based Management

  • Sviatoslav MoskalevEmail author
  • Seung Chan Park


South Korean industrial conglomerates (chaebols) are discussed in the context of value-based management (VBM). Recent economics and finance literature on the diversion of corporate resources from the firm to the controlling shareholders (tunneling), for which chaebols are notoriously known, is discussed. Chaebols have engaged in empire building and expropriation of minority shareholders, distorting the process of efficient resource allocation in South Korea, and became the root cause of the 1997 financial crisis. We argue that the 1997 crisis should be viewed as a consequence of chaebols’ systematic deviation from the guiding principles of VBM. We use tunneling within chaebols as an example of the need to directly address prohibition of the expropriation of minority shareholders as a primary postulate of VBM. We argue that VBM should require that the value generated by the firm not be expropriated from minorities, or any stakeholders, by dominant shareholders. We also examine moral and ethical considerations and present explanations as to why the unethical practice of tunneling has been tolerated by the South Korean public. We show that public opinion on tunneling is changing and that the treatment of minority shareholders by chaebols’ controlling families is becoming increasingly unacceptable to South Koreans.


chaebols governance minority shareholder expropriation tunneling value-based management 


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The authors would like to thank Joyce Silberstang and Bruce Swensen for their help with the paper.


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Copyright information

© Springer Science+Business Media B.V. 2009

Authors and Affiliations

  1. 1.Department of Accounting, Finance and Economics, School of BusinessAdelphi UniversityGarden CityU.S.A.

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