Dependence on the External Network Ties of the Outside Directors: Evidence from Groups of Large-Scale Enterprises in Korea

30 Pages Posted: 18 Aug 2013 Last revised: 6 Dec 2013

See all articles by Gangbin Lee

Gangbin Lee

Korea Advanced Institute of Science and Technology (KAIST) - Department of Management Science

Seung Hun Han

Korea Advanced Institute of Science and Technology (KAIST) - Department of Management Science

Date Written: August 18, 2013

Abstract

Using a sample of chaebol groups in Korea, we investigate the impact of outside directors who had been public officials on the firm’s performance. We find that chaebol-affiliated firms prefer to co-opt the outside directors who had positions of higher public rank than the other outside directors who were public officials. By Bonacich power centrality, we find that the network ties among ex-public officials has a positive relation with the firm’s performance, such as asset and sales growth rates. This paper’s contribution to the corporate governance literature is that we extend the role of the outside directors on the firm’s performance by focusing on their advisory function, which is little studied. This paper also is the first that measures the political network ties of these directors by using the Bonacich power centrality.

Keywords: outside directors, advisory role, power centrality, ex-public officials

JEL Classification: G30

Suggested Citation

Lee, Gangbin and Han, Seung Hun, Dependence on the External Network Ties of the Outside Directors: Evidence from Groups of Large-Scale Enterprises in Korea (August 18, 2013). 26th Australasian Finance and Banking Conference 2013, Available at SSRN: https://ssrn.com/abstract=2311970 or http://dx.doi.org/10.2139/ssrn.2311970

Gangbin Lee (Contact Author)

Korea Advanced Institute of Science and Technology (KAIST) - Department of Management Science ( email )

291 Daehak-ro(373-1 Guseong-dong), Yuseong-gu
Daejeon, 305-701
Korea, Republic of (South Korea)

Seung Hun Han

Korea Advanced Institute of Science and Technology (KAIST) - Department of Management Science ( email )

291 Daehak-ro(373-1 Guseong-dong), Yuseong-gu
Daejeon, 305-701
Korea, Republic of (South Korea)

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