Institutional Dynamics and the Evolution of Corporate Political Networks: Evidence from South Korea

Why do firms choose nonmarket strategies the way they do? Although the literature demonstrates the impact of firms’ nonmarket strategies, such as informal networks, on firm values, what explains the evolution of such networks over time has curiously escaped sustained analytic attention. We offer the first such analysis by examining the trajectory of Korean chaebol families’ network marriages during the entire post-Korean War period as a crucial case. We argue that Korea’s institutional change from dictatorship to democracy has created disincentives for chaebol families’ marriages with high-profile politicians and public servants and thereby decreased the number of chaebols’ political marriages directly and indirectly, the latter being mediated by increasing criminal prosecutions of chaebol families. The argument receives robust support from causal mediation analyses of fifty-two Korean chaebol families’ network marriages during 1955-2015, while accounting for financial openness, economic development, government partisanship, media reporting, and other factors. We suggest that these findings have important implications for understanding firms’ political connections as a key nonmarket strategy and their changes over time.