Using an organizational form of Korean business groups, or chaebols, this dissertation attempts to answer how firms use their organizational network to avoid the disadvantages of an imperfect capital market. Specifically, the dissertation studies the presence of an internal capital market inside the business groups, the persistence of econo-political ties after a power change and product switching as a means to avoid adverse macroeconomic shock. The first chapter finds the presence of an internal capital market within Korean business groups and shows that the preferential treatment among firms within vertically integrated business groups is one of the strategies to cope with capital market imperfections using unit price data collected for the first time from the proceedings reports by the Korea Fair Trade Commission (KFTC) on internal transactions of business conglomerates. The second chapter demonstrates that the group level short term borrowings have increased for those business groups with tight political ties, although borrowings in general have been reduced substantially after the financial crisis using difference in differences method and weighted index of political ties of Korean business groups. Finally, using a logit analysis with the differentiation of "net" and "gross" concepts of product switching and tracking down the entry and exit of the affiliated firms at the business group level, the last chapter finds that expanding group level production portfolio can improve the immunity of the business groups from adverse macroeconomic shocks.
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