Determinants in Introduction of Outside Directors in Korean Companies

Abstract

Corporate governance is one of the major topics in strategic management, however the majority of research on this subject is limited to analysis of governance mechanism impact on management. This paper intends to analyze other various factors that influence the governance mechanism. Specific focus is placed on identifying factors that affect the introduction of outside directors to Korean companies in the post-currency crisis era. Three areas, which are generally regarded as major sources of competitive advantages of a firm, are taken into consideration in order to determine these factors: managerial, environmental and internal resources. In turn, we continue our examination of seven variables derived from these three areas. Introduction effectiveness of outside directors is measured by three factors, such as independence, information and compensation. Empirical tests from 110 Korean manufacturing companies, reveals that effective introduction of outside directors in Korean companies after the currency crisis has a positive relationship with firm size and debt ratio, a negative relationship with the ownership rate of large shareholders and mixed result with past performance.