The Value-Relevance of Earnings and Book Value, Ownership Structure, and Business Group Affiliation: Evidence from Korean Business Groups

27 Pages Posted: 11 Jul 2007

See all articles by Kee-Hong Bae

Kee-Hong Bae

York University - Schulich School of Business

Seok Woo Jeong

Korea University - Department of Accounting

Abstract

We investigate the quality of two primary accounting summary measures, i.e., earnings and book value, provided by firms belonging to Korean business groups (chaebols). We find that the value-relevance of earnings and book value is significantly smaller for firms affiliated with business groups. We also find that cross-equity ownership (a proxy for the agency problem between controlling and minority shareholders) negatively affects value-relevance, while foreign equity ownership (a proxy for the monitoring effect) positively affects value-relevance. This evidence is consistent with the view that the poor quality of earnings and book value provided by chaebol-affiliated firms is due to the inherently poor governance structure of chaebols.

JEL Classification: G12, M41, M47, G32

Suggested Citation

Bae, Kee-Hong and Jeong, Seok Woo, The Value-Relevance of Earnings and Book Value, Ownership Structure, and Business Group Affiliation: Evidence from Korean Business Groups. Journal of Business Finance & Accounting, Vol. 34, Nos. 5-6, pp. 740-766, June/July 2007. Available at SSRN: https://ssrn.com/abstract=999773 or http://dx.doi.org/10.1111/j.1468-5957.2007.02017.x

Kee-Hong Bae (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Seok Woo Jeong

Korea University - Department of Accounting ( email )

Seoul, 136-701
Korea

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