The company's net income in the first half was 3.2 trillion won, but analysts say too much of it goes into questionable investments and to support struggling sister companies. Korea's blind spot on corporate governance is emerging as a problem that could brake its economic recovery. Despite the introduction of consolidated financial statements and outside directors, some chaebols hew to the discredited ways of pre-crisis Korea Inc. Profitable affiliates are dragooned into pouring money into weak ones. Chaebol chairmen lose millions on unilateral investment decisions. Suggestions of insider trading by chaebol families persist and dividends are often low compared to profits.
Nervous investors are prone to avoid the stocks even in good times.
When they make big money, investors are always sceptical about what they'll do with the cash. Local equity funds have redeemed investments. Now foreign investors, who have been strong buyers, are losing patience too. Mass redemptions would send the market into free fall. Foreigners may also reconsider alliances with Korean companies, just when Korean firms need foreign innovation to compete in the New Economy.