Corporate Governance and Payout Policy: Evidence from Korean Business Groups

41 Pages Posted: 24 Aug 2013 Last revised: 9 Oct 2013

See all articles by Lee-Seok Hwang

Lee-Seok Hwang

Seoul National University - College of Business Administration

Hakkon Kim

KAIST College of Business

Kwangwoo Park

KAIST (Korea Advanced Institute of Science and Technology) - College of Business

Rae Soo Park

Sookmyung Women's University

Date Written: July 10, 2013

Abstract

Using a unique, comprehensive data set from a survey on corporate governance practices among Korean listed firms, this paper shows that business group (chaebol) firms have overall stronger governance practices but weaker shareholder rights and lower dividend payout ratios than independent firms do. We also find that the adverse effect of chaebol firms’ weak shareholder rights on dividend payout ratios appears to exemplify with the onset of the global financial crisis in 2008. In addition, our regression results show that the positive correlation between good corporate governance practices and dividend payout ratios is weaker among chaebol firms. Finally, we find that improving corporate governance enhances payout policies over time but is statistically significant only for independent firms. Our results suggest that the entrenched control by chaebol firm owners that stems from their control rights much above the cash flow rights puts less weight on protecting minority shareholders, resulting in smaller distributions of dividend payments.

Keywords: Payout policies, Corporate governance, Business group

JEL Classification: G34, G35

Suggested Citation

Hwang, Lee-Seok and Kim, Hakkon and Park, Kwangwoo and Park, Rae Soo, Corporate Governance and Payout Policy: Evidence from Korean Business Groups (July 10, 2013). Pacific-Basin Finance Journal, Vol. 24, 2013; KAIST College of Business Working Paper Series No. 2013-009. Available at SSRN: https://ssrn.com/abstract=2314723 or http://dx.doi.org/10.2139/ssrn.2314723

Lee-Seok Hwang

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

Hakkon Kim

KAIST College of Business ( email )

Korea, Republic of (South Korea)

Kwangwoo Park (Contact Author)

KAIST (Korea Advanced Institute of Science and Technology) - College of Business ( email )

85 Hoegiro
Seoul 02455
Korea, Republic of (South Korea)
82-2-958-3540 (Phone)
82-2-958-3604 (Fax)

Rae Soo Park

Sookmyung Women's University ( email )

100, Cheongpa-ro 47-gil
Seoul
Korea, Republic of (South Korea)

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