Can good corporate governance help companies through financial crisis?
Abstract
This study examines how corporate governance structure and conflicts of interest among shareholders under the poor corporate governance system affected firm performance before crisis. Using 50 firms subject to outside auditing, paper finds that firms with low corporate governance concentration show low firm profitability, controlling for firm and industry characteristics. Controlling shareholders expropriated firm resources even when their corporate governance concentration was small. Firms with the high disparity between control rights and corporate governance rights showed low profitability. When the business group transferred resources from the subsidiary to another, they were often wasted, suggesting that “tunneling” occurred. In addition, negative effects of control-corporate governance disparity and internal capital market inefficiency were stronger in publicly traded firms than in privately held ones.
Table of Content
ABSTRACTII
ACKNOWLEDGEMENTIV
CHAPTER 01: INTRODUCTION1
Outline of Research1
Aims and Objectives1
Theoretical Framework2
Purpose of Research2
Limitations3
CHAPTER 02: LITERATURE REVIEW4
The crisis and corporate sector problems4
Corporate governance structure of firms5
Determinants of firm profitability8
Control-corporate governance disparity9
Firm organization10
Financial structure10
CHAPTER 03: METHODOLOGY11
Research Design11
Measures13
Data13
Variables14
CHAPTER 04: RESULTS ANALYSIS19
Empirical tests and results19
Impact of controlling shareholders' corporate governance on firm profitability21
Yearly regression results23
Determinants of firm profitability25
Robustness tests26
Time-varying effects of corporate governance concentration27
Nonlinearity of corporate governance effects29
Expropriation in publicly traded firms31
CHAPTER 05: SUMMARY AND DISCUSSION OF RESULTS36
CHAPTER 06: CONCLUSION AND RECOMMENDATION38
REFERENCES40
APPENDIX45
Appendix A. List of Top 30 business groups (chaebols)45
Acknowledgement
I would like to express my thanks to my advisor, for his suggestions, comments, patience and understanding. Very special thanks to my parents, my father, my mother, my brother and my sister who were continuously supporting me throughout my life and leaving me free in all my decisions. I would also like to thank my colleagues for his technical support whenever I needed. I would like to thank to Department, all the university managers, teachers and students with whom I have worked.
I certify that the work presented in the dissertation is my own unless referenced
Many countries that suffered during recent economic crises in Asia and other emerging markets had weak legal environments and poor governance systems. This observation has triggered much discussion on importance of corporate governance. For example, Aghion, P., Bacchetta, P. and Banerjee, A., (2009) show that countries with weak legal protections suffered greater exchange rate depreciation and severer stock market declines during crisis. Using firm level data, De Bondt, W.F.M, Richard, F.M. and Thaler, R.H., (2009) shows that corporate governance measures, such as high disclosure quality and concentrate corporate governance, affected stock market valuation during crisis. De Bondt, Richard, (2009) show that, during crisis, firms showed low performance when their controlling managers had more control rights than corporate governance rights.
Aims and Objectives
There are four objectives of this research as below.
Most prior research focus on the effects of corporate governance structure during the finanacial crisis.
This study examines its effects before the crisis. argue that the financial distress of firms helped cause the crisis. If poor corporate governance helped lower firm value and financial survivability before the crisis, it arguably increased the economy's aggregate ...