Corporate Governance and Firm Value: Evidence from the Korean Financial Crisis

63 Pages Posted: 2 Jun 2003

See all articles by Jun-Koo Kang

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School

Jae-Seung Baek

Hankuk University of Foreign Studies - Department of International Finance

Kyung Suh Park

Korea University - Department of Finance

Date Written: August 2002

Abstract

We show that during the 1997 Korean financial crisis, chaebol firms with higher ownership concentration by unaffiliated investors experience a smaller reduction in their share value. Firms with higher disclosure quality and alternative sources of external financing also suffer less. In contrast, chaebol firms with concentrated ownership by controlling family shareholders experience a larger drop in the value of their equity. Firms in which the controlling shareholders' voting rights exceed their cash flow rights, borrow more from the main banks, and are highly diversified also have lower returns. Finally, we find that downsizing (diversifying expansionary) actions during the crisis have a positive (negative) effect on the value of chaebol firms. Our results suggest that change in firm value during such a crisis is a function of firm-level differences in corporate governance measures and owner-manager incentives.

Keywords: Corporate Governance, Controlling Shareholders, Chaebol, Main Bank, Cash Flow Rights, Control Rights, Corporate Restructuring, Foreign Ownership, Korean Financial Crisis

JEL Classification: G21, G33, G34

Suggested Citation

Kang, Jun-Koo and Baek, Jae-Seung and Park, Kyung Suh, Corporate Governance and Firm Value: Evidence from the Korean Financial Crisis (August 2002). Available at SSRN: https://ssrn.com/abstract=348401 or http://dx.doi.org/10.2139/ssrn.348401

Jun-Koo Kang (Contact Author)

Nanyang Technological University (NTU) - Nanyang Business School ( email )

Nanyang Avenue, Block S3-01b-54
Singapore, 639798
Singapore
(+65) 6790-5662 (Phone)
(+65) 6791-3697 (Fax)

HOME PAGE: http://www.nbs.ntu.edu.sg/nbs_corporate/divisions/bnf/index.asp

Jae-Seung Baek

Hankuk University of Foreign Studies - Department of International Finance ( email )

College of Economics and Business
Oedae-ro 81, Mohyun, Cheoin-gu
Yongin-si, 17035
Korea, Republic of (South Korea)
+82-31-330-4936 (Phone)

Kyung Suh Park

Korea University - Department of Finance ( email )

Seoul, 136-701
United States

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