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Term Paper draft - Abram Balloga ECON 4450 Term Paper...

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Abram Balloga ECON 4450 Term Paper 5/5/2009 American National Champions Outline: Intro/background Talk about Korean emerging economy and fostering of national champions in industrial parks. Say this method had to be altered to jump start the economy after the Korean crisis of 1997 Introduce topical similarities between that and American national champions, Describe Korean crisis Lee, Seung-Hyun. “the crisis that struck Southeast and East Asia in 1997 was, for most countries in the region, the most severe of the last 50 years.”pp2 “in the case of Korea since it was mainly a liquidity crisis caused by the huge debt accumulated by Korean firms as they invested heavily in new industrial capacities such as semiconductor and automobile factories (Burton & Baker, 1998). The debt equity ratio of major chaebols such as Samsung and Hyundai were unusually high. The high debt made these companies vulnerable to the recall of those debts.”pp2 “Real options take on their greatest value during periods of abnormally high uncertainty faced by firms, since these constitute the circumstances under which managers require the most flexibility.”pp3 Six different types of real options investments made by Korean firms prior to the crisis o Capital, R&D and patents, international sales base, human capital, firm and product reputation, and network relationships. “Investment in R&D can ultimately result in improvements in existing products, new products in line with emerging demand, reduction in costs or increase in quality.” Pp4, necessary for product innovation and increase the firms flexibility in the event of sudden economic changes. “As expected, size is negatively associated with firm value, consistent with our expectation that smaller firms will be more flexible in a adapting to uncertain environments.” Pp11 It is suggested that “firms performing well in a stable environment do not invest adequately in options.” Pp 11 “chaebol-like structures such as keiretsu approximate a portfolio of options- related assets, McGrath (1999) stresses that affiliation to the chaebol network actually decreases flexibility due to their centralized decision making systems.” Pp 11
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“In addition, the economic situation may have provided the impetus for new business start-ups by former employees. Thus , many people may leave employment of their own accord to start new businesses.” Pp12 “We find that firm size remains both significant and negative in 1999. This is consistent with the nothion that smaller firms benefit from their size in both stable and uncertain environments. Pp 13 “top 5 chaebol’s success can therefore be associated with more stable periods, which also helps to explain their roles in the Korean economy even prior to the crisis, but only those biggest chaebols are the ones that benefit most in a stable period.” Pp 13 “real options investments are associated with greater value during periods of
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Term Paper draft - Abram Balloga ECON 4450 Term Paper...

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