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Outside directors, ownership structure and firm profitability in Korea

Cited 71 time in Web of Science Cited 91 time in Scopus
Issue Date
2007-03
Publisher
BLACKWELL PUBLISHING
Citation
CORPORATE GOVERNANCE-AN INTERNATIONAL REVIEW; Vol.15 2; 239-250
Keywords
governance structureoutside directorsownership structure
Description
The definitive version is available at www.blackwell-synergy.com
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
URI
https://hdl.handle.net/10371/80656
DOI
https://doi.org/10.1111/j.1467-8683.2007.00557.x
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College of Business Administration/Business School (경영대학/대학원)Dept. of Business Administration (경영학과)Journal Papers (저널논문_경영학과)
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