Predicting Firms' Corporate Governance Choices: Evidence from Korea

54 Pages Posted: 14 Nov 2005 Last revised: 21 Nov 2018

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)

Hasung Jang

Korea University - Department of Finance

Woochan Kim

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

Date Written: November 2005

Abstract

This paper contributes to a new literature on the factors that affect firms’ corporate governance practices. We find that regulatory factors are highly important, largely because Korean rules impose special governance requirements on large firms (assets > 2 trillion won). Industry factors, firm size, and firm risk are also important. Other firm-specific factors only modestly affect governance even when they are statistically significant. This suggests that many Korean firms do not choose their governance to maximize share price. Among firmspecific factors, the most significant are size (larger firms are better governed) and firm risk (riskier firms are better governed). Long-term averages of profitability and equity finance need are significant, where short-term averages are not. This is consistent with “sticky governance,” in which firms alter their governance slowly in response to economic factors.

Keywords: Korea, corporate governance, corporate governance index, law and finance

JEL Classification: G32, G34

Suggested Citation

Black, Bernard S. and Jang, Hasung and Kim, Woochan, Predicting Firms' Corporate Governance Choices: Evidence from Korea (November 2005). Journal of Corporate Finance, Vol. 12, pp. 660-691, 2006; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 87/2005; KDI School of Pub Policy & Management Paper No. 04-16; McCombs Working Paper No. FIN-03-05; Stanford Law and Economics Olin Working Paper No. 269; U of Texas law, Law and Econ Research Paper No. 39. Available at SSRN: https://ssrn.com/abstract=428662

Bernard S. Black (Contact Author)

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

Hasung Jang

Korea University - Department of Finance ( email )

Seoul, 136-701
United States

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 ECARES ULB CP 114
B-1050 Brussels
Belgium

Asian Institute of Corporate Governance (AICG) ( email )

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

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