The Effect of Board Structure on Firm Value: A Multiple Identification Strategies Approach Using Korean Data
Bernard S. Black
Northwestern University - School of Law; Northwestern University - Kellogg School of Management; European Corporate Governance Institute (ECGI)
Korea University Business School; European Corporate Governance Institute (ECGI); Asia Corporate Governance Institute (AICG)
July 9, 2011
Journal of Financial Economics (JFE), 2011
U of Texas Law, Law and Econ Research Paper No. 89
McCombs Research Paper No. FIN-02-07
ECGI - Finance Working Paper No. 179/2007
KDI School of Pub Policy & Management Paper No. 07-02
EFA 2007 Ljubljana Meetings Paper
Outside directors and audit committees are widely considered to be central elements of good corporate governance. We use a 1999 Korean law as an exogenous shock to assess how board structure affects firm market value. The law mandates 50% outside directors and an audit committee for large public firms, but not smaller firms. We study how this shock affects firm market value, using event study, difference-in-differences, and instrumental variable methods, within a regression discontinuity approach. The legal shock produces large share price increases for large firms, relative to mid-sized firms; share prices jump in 1999 when the reforms are announced.
In a companion paper, Bernard Black, Woochan Kim, Hasung Jang and Kyung-Suh Park, How Corporate Governance Affects Firm Value: Evidence on Channels from Korea (working paper 2011), http://ssrn.com/abstract=844744, we provide evidence on the channels through which governance may affect firm value.
For our earlier cross-sectional research on Korean corporate governance, see:
Bernard Black, Hasung Jang and Woochan Kim, Does Corporate Governance Affect Firms' Market Values? Evidence from Korea,: 22 Journal of Law, Economics and Organization 366-413 (2006), nearly final version at http://ssrn.com/abstract=311275
Bernard Black, Hasung Jang & Woochan Kim, Predicting Firms' Corporate Governance Choices: Evidence from Korea, 12 Journal of Corporate Finance 660-691 (2006), nearly final version at http://ssrn.com/abstract=428662
Number of Pages in PDF File: 61
Keywords: Korea, outside directors, audit committees, corporate governance, board of directors, emerging markets
JEL Classification: G32, G34Accepted Paper Series
Date posted: March 5, 2007 ; Last revised: July 10, 2011
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