The Effect of Board Structure on Firm Disclosure and Behavior: A Case Study of Korea and a Comparison of Research Designs

Journal of Empirical Legal Studies, vol. 18, forthcoming 2021

Northwestern Law & Econ Research Paper 12-13

52 Pages Posted: 15 Sep 2012 Last revised: 13 Dec 2020

See all articles by Bernard S. Black

Bernard S. Black

Northwestern University - Pritzker School of Law; Northwestern University - Kellogg School of Management; European Corporate Governance Institute (ECGI)

Woochan Kim

Korea University Business School; European Corporate Governance Institute (ECGI); Asian Institute of Corporate Governance (AICG)

Julia Nasev

Ludwig-Maximilians-University Munich

Date Written: October 8, 2020

Abstract

We exploit a large legal shock to the board structure of Korean firms, using a strong research design – combined difference-in-differences and regression discontinuity – to study whether this board structure change affects firm financial reporting (disclosure, MD&A length, and abnormal accruals), investment and growth (sales growth and capital expenditures), and firm value (proxied by Tobin’s q). We also compare results from the annual DiD/RD design to those from simpler panel and “causal” methods, and assess how results vary across methods. We find robust evidence across methods that the shock predicts improved scores on a Disclosure Subindex, confirm prior findings of an increase in Tobin’s q, find some evidence for a drop in sales growth, but no convincing evidence of significant change for other outcomes. By comparing results across methods, we illustrate how using multiple causal designs can provide insight and evidence on robustness not available from a single design, as well as case study evidence that panel methods, simple DiD, and its close cousin, shock-based IV, can produce apparent false positives.

The Appendix can be downloaded without charge from SSRN at:
http://ssrn.com/abstract=3693354

Keywords: corporate governance, board structure, financial reporting quality, investment, sales growth, earnings management, accrual quality, audit committees, Korea, causal inference, panel data, difference-in-difference, instrumental variables, regression discontinuity.

Suggested Citation

Black, Bernard S. and Kim, Woochan and Nasev, Julia, The Effect of Board Structure on Firm Disclosure and Behavior: A Case Study of Korea and a Comparison of Research Designs (October 8, 2020). Journal of Empirical Legal Studies, vol. 18, forthcoming 2021, Northwestern Law & Econ Research Paper 12-13, Available at SSRN: https://ssrn.com/abstract=2133283 or http://dx.doi.org/10.2139/ssrn.2133283

Bernard S. Black

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States
312-503-2784 (Phone)

Northwestern University - Kellogg School of Management

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-5049 (Phone)

European Corporate Governance Institute (ECGI)

Brussels
Belgium

Woochan Kim

Korea University Business School ( email )

LG-POSCO Bldg #524
Anam-Dong, Seongbuk-Ku
Seoul, Seoul 136701
+822-3290-2816 (Phone)
+822-922-7220 (Fax)

HOME PAGE: http://biz.korea.ac.kr/professor/wckim

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Asian Institute of Corporate Governance (AICG) ( email )

1, 5-ga, Anam-dong
Sungbuk-gu
Seoul, 136-701
Korea, Republic of (South Korea)

Julia Nasev (Contact Author)

Ludwig-Maximilians-University Munich ( email )

Geschwister-Scholl-Platz 1
Munich, 80539
Germany

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