Electric power industry restructuring and ROE: The case of Korea Electric Power Corporation

Korea's electric power industry was previously run by Korea Electric Power Corporation (KEPCO) in a natural monopoly-type structure. As economy of scale was waning in influence and management effectiveness began to increase in importance, KEPCO was divided into six subsidiaries and faced competition beginning in April 2001. This study evaluates the restructuring process for Korea's power industry and analyzes the financial outcomes based on return on equity (ROE). The results show that the ROE ratio increased. In the analysis period (1993–2004), the financial ratio showed a better performance than that before restructuring. However, productivity ratios such as productivity of capital (or gross value added to total assets) and gross value added to property, plant, and equipment decreased compared to the situation before restructuring. It is believed that the results were due to the increased financial leverage of KEPCO. For this reason, KEPCO should make further efforts to manage its debt in a systematic way.