61 Pages Posted: 5 Mar 2007 Last revised: 10 Jul 2011
Date Written: July 9, 2011
Outside directors and audit committees are widely considered to be central elements of good corporate governance. We use a 1999 Korean law as an exogenous shock to assess how board structure affects firm market value. The law mandates 50% outside directors and an audit committee for large public firms, but not smaller firms. We study how this shock affects firm market value, using event study, difference-in-differences, and instrumental variable methods, within a regression discontinuity approach. The legal shock produces large share price increases for large firms, relative to mid-sized firms; share prices jump in 1999 when the reforms are announced.
In a companion paper, Bernard Black, Woochan Kim, Hasung Jang and Kyung-Suh Park, How Corporate Governance Affects Firm Value: Evidence on Channels from Korea (working paper 2011), http://ssrn.com/abstract=844744, we provide evidence on the channels through which governance may affect firm value.
For our earlier cross-sectional research on Korean corporate governance, see:
Bernard Black, Hasung Jang and Woochan Kim, Does Corporate Governance Affect Firms' Market Values? Evidence from Korea,: 22 Journal of Law, Economics and Organization 366-413 (2006), nearly final version at http://ssrn.com/abstract=311275
Bernard Black, Hasung Jang & Woochan Kim, Predicting Firms' Corporate Governance Choices: Evidence from Korea, 12 Journal of Corporate Finance 660-691 (2006), nearly final version at http://ssrn.com/abstract=428662
Keywords: Korea, outside directors, audit committees, corporate governance, board of directors, emerging markets
JEL Classification: G32, G34
Suggested Citation: Suggested Citation
Black, Bernard S. and Kim, Woochan, The Effect of Board Structure on Firm Value: A Multiple Identification Strategies Approach Using Korean Data (July 9, 2011). Journal of Financial Economics (JFE), 2011; U of Texas Law, Law and Econ Research Paper No. 89; McCombs Research Paper No. FIN-02-07; ECGI - Finance Working Paper No. 179/2007; KDI School of Pub Policy & Management Paper No. 07-02; EFA 2007 Ljubljana Meetings Paper. Available at SSRN: https://ssrn.com/abstract=968287