Governance Transparency and Firm Value: Evidence from Korean Chaebols

Harvard Business School Accounting & Management Unit Working Paper No. 22-012

57 Pages Posted: 27 Sep 2021 Last revised: 27 Mar 2024

See all articles by Akash Chattopadhyay

Akash Chattopadhyay

University of Toronto - Rotman School of Management

Sa-Pyung Sean Shin

National University of Singapore (NUS) - Sustainable & Green Finance Institute (SGFIN)

Charles C. Y. Wang

Harvard University - Accounting & Control Unit; European Corporate Governance Institute (ECGI)

Date Written: March 26, 2024

Abstract

This study examines the impact of governance transparency on business group firms' valuations by analyzing Korean chaebols' transition from circular-shareholding to pyramidal-shareholding structures between 2011 and 2018. Greater transparency about controllers' incentives can impact business group firms' value through two channels: by increasing earnings informativeness and by enabling investors to update their priors about the severity of agency issues across group firms. These channels can lead to value increases and declines, depending on the relative strengths of the positive value effects of the earnings informativeness channel and the ambiguous value effects of the expected incentives channel. Our findings highlight the nuanced effects of governance transparency on firm value and have important implications for policymakers, investors, and managers.

Keywords: Governance transparency; Ownership transparency; Valuation; Earnings response coefficient; Circular shareholding

JEL Classification: G18, G34, G38, G41, L51, M14, M52

Suggested Citation

Chattopadhyay, Akash and Shin, Sa-Pyung Sean and Wang, Charles C. Y., Governance Transparency and Firm Value: Evidence from Korean Chaebols (March 26, 2024). Harvard Business School Accounting & Management Unit Working Paper No. 22-012, Available at SSRN: https://ssrn.com/abstract=3919263 or http://dx.doi.org/10.2139/ssrn.3919263

Akash Chattopadhyay

University of Toronto - Rotman School of Management ( email )

105 St George Street
Toronto, Ontario M5S 3G8
Canada

Sa-Pyung Sean Shin

National University of Singapore (NUS) - Sustainable & Green Finance Institute (SGFIN) ( email )

Singapore

Charles C. Y. Wang (Contact Author)

Harvard University - Accounting & Control Unit ( email )

Soldiers Field
Boston, MA 02163
United States

European Corporate Governance Institute (ECGI) ( email )

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

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