This effect is robust to the choice of performance variable (Tobin's q, market/book and market/sales) and the specification of the corporate governance index. Many important Korean corporate governance rules only apply to companies with assets over 2 trillion Korean won. This question is also central to the utility of the new private sector corporate governance scale for investors.
A unique feature of Korean corporate governance rules allows us to address the issue of causation. In this paper, we construct and study an objective index of corporate governance based on answers to objective questions. This means that an increase in the corporate governance index by 10 points results in an increase in market capitalization by 10 x percent) of the book value of the company's assets.
Table 5, Panel A, shows the results when Tobin's q is regressed on each individual element of the corporate governance index. Almost all (35/38) of the coefficients of the individual elements of corporate governance are positive, and the three negative coefficients are insignificant. This implies that the elements of the corporate governance index have more predictive power when aggregated into an index.
The coefficient on the corporate governance index was still found to be significant and of a similar magnitude.
Corporate Governance and Firm Value: Simultaneous Equations Results A. Test of Endogeneity
17 The asset size dummy takes the value of 1 if the book value of the asset is greater than KRW 2 trillion, and 0 otherwise. Asset size dummy 1 is defined as a value of 1 as the log of the value of the book asset is greater than 3.6, and 0 otherwise. Asset size dummy 2 is defined as 1 if the log of the book value is greater than 4.6, and 0 otherwise.
If firms with book value of assets greater than KRW 2 trillion have a higher level of corporate governance, a significant coefficient on the asset size duam 5.19 should be observed. This is observed for the overall index CG1, and sub-indices C (directors external) and D (audit committee and internal auditor). 19 Asset size dummy 5 takes a value of 1 if the log of the asset value is greater than 7.6, and 0 otherwise. In the case of sub-index B, the coefficients on the asset size dummy are not significant either, suggesting that the system is not well identified (equations 9 and 11).
Indices A and E are also problematic as the coefficients on the asset size dummy are not statistically significant in the 3SLS models (equations 7 and 23). The subsamples divided by book asset value are not analyzed because we use the asset size dummy as an instrument.
Robustness Check
The coefficient of CG1 in the non-chaebol subsample is 0.01, which is smaller than that of the whole sample. In the case of chaebol firms, we cannot draw any conclusion because the system does not appear to be well identified with our asset size dummy. 42 coefficients are statistically significant at the 1% level, 8 coefficients are significant at the 5% level, and 4 coefficients are significant at the 10% level.
Conclusion
The table shows the coefficients on the six corporate governance indices for different combinations of the valuation model and firm performance. Krueger's Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments," Journal of Economic Perspectives Vol. Bhagat, Sanjai and Bernard Black (1999), "The Uncertain Relationship Between Board Composition and Firm Performance", Business Lawyer Vol.
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Shareholder Rights Subindex
Board of Directors in General Subindex
Outside Directors Subindex
27 firms sold non-reconciled shares to external directors, of these 8 to fund directors for the purchase of shares. The Banking Act and the Securities and Exchange Act require banks (regardless of size) and listed firms with assets greater than KRW 2 trillion to have an audit committee, consisting of at least 2/3 outside directors, with an external director as chairman. 23 The small sample size for questions D.4, D.9 and D.11 is because these questions apply only to companies with an audit committee.
24 Due to the formulation of the survey, the respondents could not directly answer "yes" or "no" to the individual question about whether they have an audit committee, but had to provide information on the composition of the committee.
Disclosure to Investors Subindex
Ownership Parity Subindex
Variable Descriptions Tobin's q [Book value of debt plus market value of common equity], divided by. Korean accounting rules require reasonably frequent updating of book values to reflect market values, so book values of assets should not differ significantly from current values. Market-to-book ratio The market value of common equity divided by the book value of common equity.
Market-to-sales ratio Market value of common equity divided by sales Book value of debt Book value of total liabilities in billion won. Debt/Equity Ratio Book value of debt divided by market value of common equity Market value of.
Other Variables
Correlation Matrix of Selected Variables
Correlation Matrix of Corporate Governance Subindices
