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Corruption Asia

Corruption Asia

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(percent)

Note: Ownership is based on number of shares.

aThe State covers the Government and state-owned companies.

b “Banks, etc.” includes commercial banks, merchant banks, investment trust companies, mutual savings, and finance companies.

cData from Korea Stock Exchange.

dConstructed from data files of the Korea Listed Companies Association.

Financial Institutions

No. of

The

Banks,

Securities

Insurance

Other

Year

Firms

State

a

etc.

b

Firms

Firms

Total

Corporations

Foreigners

Individuals

A. All Listed Companies

c

1992

681

9.2

16.9

5.2

5.9

28.0

18.8

4.1

39.9

1993

687

8.6

17.5

4.7

5.8

28.0

17.2

8.7

37.6

1994

698

8.7

18.3

3.6

5.4

27.3

18.1

9.1

36.9

1995

715

8.0

18.3

2.9

5.7

26.9

18.6

10.1

36.4

1996

754

7.4

17.4

2.2

6.5

26.1

20.6

11.6

34.3

1997

775

6.6

13.2

2.1

6.4

21.7

22.8

9.1

39.8

B. Listed Nonfinancial Companies

d

1988

406

0.5

4.1

4.3

1.3

9.7

17.4

3.3

69.1

1989

498

0.7

8.0

5.5

1.2

14.7

14.3

1.9

68.5

1990

531

0.6

9.2

7.5

1.5

18.2

17.4

1.8

62.0

1991

505

0.5

9.2

7.2

1.5

17.9

18.6

2.2

60.8

1992

508

2.2

9.6

7.7

1.8

19.1

16.5

3.2

59.0

1993

511

2.3

12.2

7.0

2.1

21.3

12.4

5.0

59.1

1994

521

1.8

8.6

8.0

1.9

18.5

13.6

5.3

60.8

1995

548

2.3

9.3

5.5

2.1

16.9

16.1

5.2

59.7

1996

570

2.4

8.5

4.9

2.3

15.6

17.6

5.0

59.5

1997

551

1.7

6.5

4.9

2.4

13.8

19.1

4.8

60.6

Chapter 2: Korea79

ascribed to prudence in staying away from the stock market—as part of
their risk management strategy—as the stock market was in doldrums
throughout the 1990s. The holdings of other corporations are mainly equity
investments in affiliate companies. Corporate holdings averaged 16 percent
throughout 1988-1997. Foreigners gradually increased their equity shares
in 1992 when direct purchases by them were first permitted. Before such
liberalization, foreign holdings were derived from purchases through coun-
try funds and direct capital investments.
Compared with its holdings in all listed companies, government
ownership in nonfinancial companies was remarkably smaller and more
concentrated. In most instances, the Government was the sole owner. This
trend can be explained by government ownership, whether partial or abso-
lute, of some banks. In 1998, the Government acquired an even bigger
share in several banks as part of its program to bail out these distressed
institutions.

Individuals held the majority of the shares in all industries except
in telecommunications, electricity, and service of motor vehicles (Table
2.15). In general, financial institutions had more shares in the manufactur-
ing sector than in primary industries. Over the years, other corporations’
holdings shifted toward service industries, indicating their increased in-
vestments particularly in the service industries with high growth rates. The
Government’s and state-owned institutions’ (including some banks) owner-
ship was generally small except in the power sector, with the Government
continuing to hold a sizable share in the Korea Electric Power Corporation.
The ownership distribution in listed nonfinancial firms, categorized
into large, medium, and small companies, did not vary significantly (Table
2.16). One minor difference is that the percentage of shareholdings by cor-
porations is slightly higher in large-sized firms, indicating their heavier
reliance on inter-firm financing investments.
When independent companies are distinguished from firms affili-
ated with the 30 largest chaebols, there appears to be no significant differ-
ence in the overall shareholding patterns between the two groups (Table
2.17). However, a more detailed breakdown of the data on majority
shareholdings in the next section shows significant differences in the two
groups’ composition and level of majority shareholdings.
Institutional investors, as distinguished from individual and for-
eign investors, held 26.8 percent of listed shares in 1997. This is low com-
pared with those in Japan, UK, and US (Table 2.18). However, the holdings
of institutional investors were expected to increase significantly with the
Government’s introduction of US-type investment companies in 1998 and

Table 2.15

Ownership Composition of Listed Nonfinancial Firms by Industry, 1990 and 1997

(percent)

The

Banks,

Securities

Insurance

Other

Industry

State

a

Etc.

b

Firms

Firms

Corporations

Foreigners

Individuals

1990

Fishing and Fish Farms

3.8

9.3

3.7

83.1

M

ining

6.1

2.4

2.9

88.7

Food Products and Beverages

0.2

8.9

8.6

0.6

16.7

0.3

64.8

Wearing Apparel and Fur Articles

0.2

4.4

5.3

1.2

14.7

1.0

73.4

Wood, Paper, and Printing

7.1

9.3

0.5

20.9

62.2

Pulp, Paper, and Printing

8.2

6.4

0.9

19.6

0.0

64.9

Chemicals, Rubber, and Plastics

0.4

9.3

8.1

1.9

18.7

2.4

59.2

Basic M

etal

1.3

10.5

7.2

1.2

22.6

2.3

54.9

Fabricated M

etal and M

achinery

0.5

12.0

9.0

1.4

24.1

0.2

52.9

Office and Computing M

achinery

10.9

9.5

0.3

10.7

2.1

66.7

Electronics, Elecl M

ach., and App.

1.0

10.6

7.8

1.7

14.7

4.8

59.4

M

otor Vehicles

11.2

7.7

2.1

20.8

1.5

56.7

Electricity, Gas, and Steam Supply

39.5

22.5

2.5

0.2

5.8

0.1

29.5

Precision and Optical Instruments

4.3

6.0

0.5

3.0

0.4

85.9

Other M

anufacturing

0.0

11.0

7.3

0.2

20.7

5.2

55.7

Construction

0.2

9.1

7.8

1.8

17.4

0.3

63.3

Service of M

otor Vehicles

27.9

8.0

7.0

14.9

4.1

38.1

W

holesale and Retail Trade

0.1

8.8

8.0

1.8

15.5

0.7

65.3

Transport

0.4

7.2

9.8

3.4

19.7

1.6

57.9

Telecommunications

17.8

7.6

8.9

22.9

42.9

Other Business Activities

0.3

7.3

8.7

0.3

23.1

60.4

Nonmetallic M

ineral Products

0.5

13.0

6.2

2.4

19.5

2.1

56.3

Average

0.6

9.2

7.5

1.5

17.4

1.8

62.0

Financial Institutions

1997

Fishing and Fish Farms

1.0

2.8

3.6

1.0

9.9

81.9

M

ining

1.8

6.8

1.7

3.3

6.9

0.9

78.6

Food Products and Beverages

0.9

5.0

4.4

1.8

20.3

6.7

60.9

Wearing Apparel and Fur Articles

1.2

4.4

3.9

2.2

15.8

2.9

69.6

Wood, Paper, and Printing

1.3

0.9

7.9

0.9

12.6

1.2

75.3

Pulp, Paper, and Printing

0.9

5.3

7.6

0.9

14.9

4.7

65.8

Chemicals, Rubber, and Plastics

2.1

7.0

5.8

2.4

18.6

6.3

57.9

Basic M

etal

1.8

7.9

5.0

2.4

18.8

6.2

57.8

Fabricated M

etal and M

achinery

0.8

5.4

5.7

1.1

27.2

5.5

54.4

Office and Computing M

achinery

2.5

6.6

2.2

2.6

13.7

4.6

68.0

Electronics, Elecl M

ach. and App.

1.3

7.3

5.0

2.4

17.6

6.1

60.4

M

otor Vehicles

1.2

8.4

6.1

2.5

20.3

3.0

58.4

Electricity, Gas, and Steam Supply

7.6

4.0

4.5

0.9

31.1

6.4

45.6

Precision and Optical Instruments

0.2

8.6

3.2

2.7

9.5

16.4

59.4

Other M

anufacturing

0.8

3.5

3.5

1.2

12.9

1.9

76.4

Construction

3.2

7.8

3.7

4.2

20.7

2.2

58.2

Service of M

otor Vehicles

1.4

11.2

2.4

8.1

23.1

4.3

49.5

W

holesale and Retail Trade

1.6

6.6

4.7

2.4

18.4

2.8

63.5

Transport

2.1

6.1

5.1

2.6

20.0

4.6

59.4

Telecommunications

1.5

9.1

2.5

43.2

0.5

43.3

Other Business Activities

1.4

6.8

3.1

3.5

23.0

5.1

57.1

Nonmetallic M

ineral Products

2.3

25.5

11.7

6.2

54.3

Average

1.7

6.5

4.9

2.4

19.1

4.78

60.6

= not available.

Note: Ownership is based on number of shares.

aThe State covers the government and state-owned companies.

b“Banks, etc.” includes commercial banks, merchant banks, investment trust companies, mutual savings, and finance companies.

Source: Constructed from data files of the Korea Listed Companies Association.

No. of

The

Banks,

Securities

Insurance

Other

Firm Size

a

Firms

State

b

etc.

c

Firms

Firms

Corporations

Foreigners

Individuals

Large

211

1.2

6.8

4.8

2.4

21.5

4.9

58.4

M

edium

208

1.4

6.4

4.9

2.5

18.6

4.4

61.5

Small

80

2.4

5.1

5.8

2.1

16.5

5.4

62.6

Total

499

1.7

6.5

4.9

2.4

19.3

4.8

60.4

Table 2.16

Ownership Composition of Listed Nonfinancial Firms by Size, 1997

(percent)

aLarge firms have a capital base greater than W

15 billion and small firms smaller than W

5 billion. Others are medium firms.

bThe State covers the government and state-owned companies.

c“Banks, etc.” includes commercial banks, merchant banks, investment trust companies, mutual savings, and finance companies.

Source: Constructed from data files of the Korea Listed Companies Association.

No. of

The

Banks,

Securities

Insurance

Other

Control Type

Firms

State

etc.

Firms

Firms

Corporations

Foreigners

Individuals

Independent Firms

316

1.7

8.7

6.0

2.0

16.4

4.8

60.4

Affiliates of 30 Largest Chaebols

117

0.7

8.1

6.3

1.8

17.5

3.7

61.8

Total

433

1.5

8.5

6.1

2.0

16.7

4.5

60.7

Table 2.17

Ownership Composition of Listed Nonfinancial Firms by Control Type, 1997

(percent)

Source: Constructed from data files of the Korea Listed Companies Association.

Chapter 2: Korea83

Country

Institutional Investors

Individuals

Foreigners

Japan

42.4

23.6

9.8

Korea

26.8

39.8

9.1

Taipei,China

10.3

56.5

8.7

United Kingdom

54.5

20.3

16.3

United States

45.6

47.6

6.1

Table 2.18
Ownership Composition of Listed Firms in Selected Countries, 1997

(percent)

Source: Stock Exchange of Korea.

financial institutions’ establishment of corporate pension fund accounts. At
the moment, only closed-end investment companies and traditional invest-
ment trust companies are allowed. The more popular open-end investment
companies (mutual funds) were expected to come into existence by the end
of 1999 with the Government’s deregulation of the capital market. Foreign
holdings of Korean shares were 9.1 percent and appear to be similar to the
proportion of foreign holdings in the four other countries.

Concentration of Ownership

The analysis of ownership concentration in this section focuses on
shareholdings of the majority shareholder, including those of the largest
shareholder, his/her family members, and the companies under the control
of the largest shareholder; minority shareholders, defined as those holding
less than 1 percent of shares; and other shareholders who do not belong to
either the minority shareholders or the majority shareholder group. Gener-
ally, the majority shareholder group in all listed companies consists of the
corporate, rather than the individual, investors (Table 2.19). In 1997, for
example, corporations held 70 percent of the controlling blocks of shares,
while family members accounted for only 30 percent. This has had pro-
found implications for corporate governance and the market for corporate
control in Korea.

Among nonfinancial listed firms, the majority shareholder group
on average held 23-30 percent of outstanding shares in the period 1988-
1997 (Table 2.20).

The majority shareholder group’s shareholdings in listed
nonfinancial firms steadily declined from 1990 to 1996. But these may

M

inority Shareholders

M

ajority Shareholders

Other Shareholders

Year

Corporation

Individual

Subtotal

Corporation

Individual

Subtotal

Corporation

Individual

Subtotal

1992

41.5

30.0

71.6

15.1

7.9

23.0

3.4

2.0

5.4

1993

43.1

29.9

73.0

14.3

7.7

22.0

3.9

1.2

5.0

1994

37.7

32.1

69.8

18.7

6.9

25.6

2.6

2.0

4.6

1995

44.6

28.2

72.8

16.1

6.1

22.1

2.9

2.2

5.1

1996

46.9

26.1

73.0

15.7

5.8

21.6

3.1

2.3

5.4

1997

33.3

32.7

66.0

18.7

8.1

26.8

4.9

2.3

7.2

Table 2.19

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