Three essays on corporate governance in Korea.

Lee, KeunJung (2009) Three essays on corporate governance in Korea. PhD thesis, London School of Economics and Political Science.

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Abstract

Essay 1: Corporate Governance and Firm Value: This study re-examines how ownership structure and conflicts of interest among shareholders affected corporate valuation under a poor system of corporate governance that offered poor legal shareholder protection prior to the East Asian Economic Crisis. The data is from 1,892 publicly traded firms in the Korean economy, during 1988-1997. Ownership structure is included for unlisted firms in terms of pyramid and cross-holding structures. Higher valuations are not found when the largest shareholder owned more cash flow rights. However, the divergence between cash flow rights and the control rights of ultimate shareholders in pyramid ownership and cross-holding ownership structures is associated with a negative entrenchment effect. The conflicts inherent to this ownership structure that expropriates the minority shareholder and agency cost increased approaching the East Asian crisis year.;Essay 2: Ownership Structure, Investment and Firm Valuation in Korean Companies: There has been a robust debate surrounding the causes of the East Asian Economic Crisis of 1997 and this study develops and builds upon these results. This chapter examines how ownership structures with conflicts of interest among shareholders and under a system of weak corporate governance affects investment, in terms of both capital and research and development (R&D). The sample is from 1,892 publicly trading firms in the Korean Stock Exchange, during the period 1988-1997. I find that divergence between control rights and cash flow rights is associated with over-investment in capital expenditure. These rights affect innovation in R&D, though the effect on capital expenditure and R&D spending are in opposite directions within Korean firms, prior to the East Asian Economic Crisis. These results imply that the ownership structure in the context of a poor governance system encourages 'empire-building' and the neglect of investment in firm innovation. Furthermore, I find that debt financing is more important than cash flow-investment sensitivity. This affected investment in both affiliated firms and independent firms in the process of financial liberalisation and deregulation during the 10 years prior to the East Asian Economic Crisis.;Essay 3: Ownership Structure, Diversification and Firm Value in Korean Companies: This study analyses the diversification effect of ownership structure and compares the effect of diversification on the performance of Korean affiliated firms (top 30 Chaebol) with its effect on independent firms in 10 years of panel data (1988-1997). The divergence between the cash flow rights and the control rights of ultimate shareholders affects firm diversification. Group affiliated firms have stronger a agency cost problem than creating internal capital market during the 10 years sample period but diversification for independent firms create the advantage for internal capital market in less developed capital markets. Additionally, I find the divergence between control rights and cash flow affects the diversification, diversification affects corporate value, but firm value does not affect the ownership structure in a 2SLS test.

Item Type:	Thesis (PhD)
Uncontrolled Keywords:	Economics, Finance, Economics, Commerce-Business, Asian Studies
Sets:	Collections > ProQuest Etheses Departments > Finance
URI:	http://etheses.lse.ac.uk/id/eprint/2529

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