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Corporate governance and firm profitability: Evidence from Korea before the economic crisis
| Venue: | Journal of Financial Economics |
| Citations: | 76 - 0 self |
BibTeX
@ARTICLE{Joh_corporategovernance,
author = {Sung Wook Joh},
title = {Corporate governance and firm profitability: Evidence from Korea before the economic crisis},
journal = {Journal of Financial Economics},
year = {},
pages = {287--322}
}
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Abstract
This study examines how ownership structure and conflicts of interest among shareholders under a poor corporate governance system affected firm performance before the crisis. Using 5,829 Korean firms subject to outside auditing during 1993-1997, the paper finds that firms with low ownership concentration show low firm profitability, controlling for firm and industry characteristics. Controlling shareholders expropriated firm resources even when their ownership concentration was small. Firms with a high disparity between control rights and ownership rights showed low profitability. When a business group transferred resources from a subsidiary to another, they were often wasted, suggesting that “tunneling ” occurred. In addition, the negative effects of control-ownership disparity and internal capital market inefficiency were stronger in publicly traded firms than in privately held ones. JEL classification code: G3 Key words: corporate governance, ownership, profitability, shareholder expropriation, business group *I am grateful to the participants at the 12 th Annual NBER Seminar on the East Asian Economics and the World congress meeting of the econometric society for comments on the earlier version of this paper. I am especially grateful to Simon Johnson and an anonymous referee for their valuable suggestions. Their helpful comments have greatly improved the paper. However, all remaining errors are mine.
Keyphrases
corporate governance firm profitability economic crisis business group control-ownership disparity shareholder expropriation low ownership concentration poor corporate governance system th annual nber seminar anonymous referee g3 key word econometric society korean firm control right firm resource jel classification code helpful comment ownership right east asian economics industry characteristic low profitability valuable suggestion low firm profitability internal capital market inefficiency ownership concentration firm performance negative effect simon johnson world congress meeting high disparity ownership structure
