Corporate Governance and Firm Value

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Journal of Financial Economics 71 (2004) 265–313

Corporate governance and firm value: evidence from the Korean financial crisis$
Jae-Seung Baeka, Jun-Koo Kangb,*, Kyung Suh Parkc
a

College of Economics and Business, Hankuk University of Foreign Studies, KyungGi-Do, South Korea b Department of Finance, Eli Broad College of Business, Michigan State University, East Lansing, MI 48824, USA c College of Business Administration, Korea University, Seoul, South Korea Received 1 October 2001; accepted 5 November 2002

Abstract During the 1997 Korean financial crisis, firms with higher ownership concentration by unaffiliated foreign investors experienced a smaller reduction in their share value. Firms that had higher disclosure quality and alternative sources of external financing also suffered less. In contrast, chaebol firms with concentrated ownership by controlling family shareholders experienced a larger drop in the value of their equity. Firms in which the controlling shareholders’ voting rights exceeded cash flow rights and those who borrowed more from the main banks also had lower returns. Our results suggest that change in firm value during a crisis is a function of firm-level differences in corporate governance measures. r 2003 Elsevier B.V. All rights reserved.
JEL classification: G15; G21; G32; G33; G34 Keywords: Corporate governance; Firm value; Chaebol; Controlling shareholder; Main bank

1. Introduction Current research demonstrates the importance of corporate governance in the development of financial markets. La Porta, Lopez-de-Silanes, Shleifer, and Vishny
We are grateful for comments from David Brown, Stijn Claessens, Mark Flannery, Wei-Lin Liu, Miles Livingston, Andy Naranjo, Jay Ritter, Mike Ryngaert, Michael Shih, an anonymous referee, participants at seminars at the University of Florida, the Korea University, the 2002 Asian Corporate Governance Conference, and the 2002 PACAP Finance Conference. *Corresponding author. Tel.:...