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Outside Directors, Ownership Structure and Firm Profitability in Korea
Cited 74 time in
Web of Science
Cited 97 time in Scopus
- Authors
- Issue Date
- 2007
- Publisher
- Blackwell Publishing
- Citation
- Corporate Governance: An International Review, 15, 239-250
- Keywords
- Governance structure ; Outside directors ; Ownnership stucture
- Abstract
- The contribution of outside directors to firm performance has been shown to be inconsistent.
Korean companies first began in 1998 to introduce outside directors to carry out governance
reform. This paper analyses the impact of outside directors on corporate performance during
the governance reform movement undertaken in Korea in 1999 as well as the moderating effect
of the large shareholder and managerial ownership rate. We hypothesised a positive relationship
between outside director effectiveness (outside director participation rate) and firm
profitability, a negative moderating effect in terms of large shareholder ownership and managerial
ownership, and a positive moderating effect when it comes to blockholder ownership.
This moderating relationship is considered in order to investigate the role of large shareholders
under the Korean governance structure. Our empirical analysis showed that outside directors
had a weak positive impact, and that a large shareholder ownership rate and a block
shareholder ownership rate moderated this relationship in a negative fashion. The managerial
ownership rate did not show any significant moderating effects. We thus conclude that it is
too early to assess the impact of outside directors on corporate performance, and that Korean
companies exhibit an owner-controlled governance structure; that is, they are governed by
large shareholders who have demonstrated a resistance to attempts to bring about governance
reform through such means as the introduction of outside directors. Outside shareholders
were found to possess insufficient power to monitor large controlling shareholders. This paper
seeks to make a contribution to the field by conducting an analysis of governance structure
in Korea in the aftermath of the currency crisis, as well as of outside directors in emerging
economies, a subject rarely dealt with in governance studies.
- ISSN
- 0964-8410
- Language
- English
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