The focus of the investigation seems to be on M&A deals signed under Chung who led the company from 2009 to 2014. Some of the deals have been cited as bad decisions.

According to Chaebul.com, a website that tracks activities of large conglomerates, POSCO spent over 7 trillion won in 11 cases of stake investments and M&As during the five-year period. One of them is Daewoo International that cost the steelmaker 3.4 trillion won for a 60.3 percent stake. Market analysts say the price was about 1 trillion won higher than the stake's face value.

Daewoo International has since been a headache for POSCO due to its relatively low profitability. Incumbent chairman Kwon Oh-joon reportedly considered selling the stakes, but the company's circumstances has recently rebounded on successful development of gas fields in Myanmar.

Another company under scrutiny is POSCO M-Tech, an affiliate that deals in various metal products and materials development.

The company suffered from what has been described as the failed takeover of firms ailing in profitability. The takeover took its toll on POSCO M-Tech, which has logged losses since 2013.

During Chung's five-year term, POSCO's operating profit ratio plunged from 17 percent to 5 percent, while its debt ballooned from 9 trillion won to 14 trillion won.

Some suspect that Chung's business decisions were motivated to pander to the government's push for the so-called energy diplomacy, a key policy agenda of the then-President Lee Myung-bak to secure natural resources from around the world.

"Those M&As seem to be in line with the stepped-up government-led energy diplomacy. Decisions have been made business-wise, but many of those takeovers appear to have been based on political considerations," Kim Yong-jin, an economics professor of Seogang University, told Yonhap.

"POSCO should have focused more on its core business, which is steelmaking, not on such resources projects."

But there are reasons why POSCO heeds to politics.

Previously state-owned, the steelmaker was privatized in 2000.

Appointments of the conglomerate's chairmen are still understood as heavily influenced by the government. The change of management has more to do with the inauguration of new administrations than company business or the term of CEOs. Often, the heads of POSCO were jailed after stepping down on various corruption charges.

Experts blame POSCO's business environment as having led to the current prosecution investigation, as well as the group's gloomy financial conditions.

They said that the checkered company history will not be fundamentally resolved unless the environment changes.

Chung took charge of POSCO with the support of close aides to the then-President Lee in 2009. Many assumed that he would not be free from government pressure in managing the conglomerate. His second-term was cut short after the current Park Geun-hye government was inaugurated in February 2013.

On the bright side, the market does not see the ongoing investigation as seriously hurting POSCO's business plans for the future, although there would be some stains on the company's image.

"It could hurt its global image by giving an impression that the company has some kind of connections with politics. Some short-term investors might shun POSCO shares on worries that it could face penalties as a result of the investigation," said Jeon Seung-hun, an analyst at KDB Daewoo Securities Co.

"But given that POSCO is not seeking to increase its business size but restructure itself, the investigation could rather serve as a impetus that could accelerate the pace of the reform drive."

Last month, POSCO told investors that it will reduce investment and seek to sell assets deemed unnecessary to its core business this year as part of restructuring efforts.

POSCO Chairman Kwon Oh-joon said that the company will strengthen its financial soundness by securing some 1 trillion won this year through planned corporate restructuring, such as affiliate sales. (Yonhap)