Outsider Board Activity, Ownership Structure and Firm Value: Evidence from Korea

28 Pages Posted: 8 May 2013

See all articles by Byung‐Seong Min

Byung‐Seong Min

Griffith University

Peter Verhoeven

Queensland University of Technology - QUT Business School; Financial Research Network (FIRN)

Date Written: June 2013

Abstract

Using a sample of publicly listed firm in Korea from 2002 to 2006, this article examines the impact of board monitoring on firm value and productivity. We use outsider's attendance of board meetings as a proxy for board monitoring. Consistent with the commitment hypothesis, we find that outsider's attendance rate increases firm value, suggesting that attending board meeting itself is a strong signal that reflects outsider's intention to monitor insiders. While ownership of controlling shareholders negatively affects firm value, this relationship is not moderated by increased monitoring by outsiders. Our findings provide further evidence that the outside director system is less effective in chaebol‐affiliated firms. Results also indicate that the effect of outsider's board monitoring activity on investor's valuation of the firm is greater than on productivity improvement of the firm. Our conclusions are robust for possible endogeneity in the relationship between firm value and board attendance by outside directors.

Suggested Citation

Min, Byung‐Seong and Verhoeven, Peter, Outsider Board Activity, Ownership Structure and Firm Value: Evidence from Korea (June 2013). International Review of Finance, Vol. 13, Issue 2, pp. 187-214, 2013. Available at SSRN: https://ssrn.com/abstract=2262147 or http://dx.doi.org/10.1111/irfi.12004

Byung‐Seong Min (Contact Author)

Griffith University

170 Kessels Road
Nathan, QLD 4111

Peter Verhoeven

Queensland University of Technology - QUT Business School ( email )

GPO Box 2434
Brisbane, Queensland 4001
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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