Almeida et al. (2011) show how Korean chaebols are formed using the critical control threshold centrality. In this paper, we introduce the social network theory to operationalize centrality in the context of the organizational structure of a business group. Specifically, the degree centrality, the Katz centrality, and the Hub/Authority centrality are employed to explain how chaebols make corporate governance decisions after chaebol formation—going public, staying private, and being divested—in terms of centrality. We find that firms with high centrality are more likely to go public while firms with low centrality are more likely to stay private or be divested. In addition, firms invested by other group firms tend to stay private and firms without substantial equity stake in other group firms tend to be divested. Firms directly owned by the controlling family are more likely to stay private and less likely to be divested. We calibrate centrality based on the social network theory and explore how Korean chaebol system evolves for survival and prosperity.

Keywords: Korean Chaebols, Ownership Structure, Social Network Analysis, Going Public, Divesture​ 

JEL Classifications: G34; Z13