Chaebol
Government-led reforms and the 2008 crisis
### Government\-led reforms and the 2008 crisis

Kim Dae\-Jung enacted what is known as the "Five Principles of Corporate Governance". These were the enhancement of management transparency, strengthening owner\-manager accountability, elimination of cross\-debt guarantees among chaebol affiliates, improvement of capital structures, and consolidation of core business areas. In his plans, debt\-to\-equity ratios was to be below 200%. Chaebol subsidiaries that were debt\-laden or on the verge of bankruptcy were instructed to be either liquidated, sold, or put up for merger. Each chaebol\-holding group had to break up its subsidiaries and operations so that they were more manageable. By the end of 1997, each had an average of 26\.8 subsidiaries. It was hoped that if there were fewer activities, the quality of the remaining businesses would see improvement. Many unrelated branches to their core competencies were swiftly shed. If any of the conglomerates failed to meet the conditions by the set deadlines, strict sanctions would be passed against them. During the [2008 financial crisis](/wiki/Financial_crisis_of_2007%E2%80%932008 "Financial crisis of 2007–2008"), many of these reforms ensured chaebols' quick recovery. Having had exposure to a massive recession before, they learned to cope better than those in foreign countries. With significantly healthier balance sheets and higher cash reserves, the chaebols were able to avoid any liquidity issues. Moreover, with fewer subsidiaries, they were less exposed to the full scope of the crisis and thus helped keep the Korean economy afloat.

President [Roh Moo Hyun](/wiki/Roh_Moo-hyun "Roh Moo-hyun") pushed for even more extensive reform. His administration passed stringent regulations on fraudulent accounting, [stock manipulation](/wiki/Stock_manipulation "Stock manipulation"), and irregular wealth succession. Chaebols were forced to improve objectivity on their board of directors. Rather than having the decision\-makers be insiders, affiliates, or family members, chaebols were expected to hold representation that reflected the interests of investors, especially minority shareholders who gained a significant number of rights. As a result, it became easier for chaebols to raise capital through equity rather than riskier debt. This is because the new transparency laws and restructuring boosted investor confidence from abroad.


What role did stricter regulations on fraudulent accounting and stock manipulation play in chaebol reform?