The Value of Outside Directors: Evidence from Corporate Governance Reform in Korea

2007 ◽  
Vol 42 (4) ◽  
pp. 941-962 ◽  
Author(s):  
Jongmoo Jay Choi ◽  
Sae Woon Park ◽  
Sean Sehyun Yoo
Keyword(s):  
Corporate Governance ◽  
Financial Crisis ◽  
Asian Financial Crisis ◽  
Independent Directors ◽  
Board Composition ◽  
Governance Reform ◽  
Outside Directors ◽  
Family Control ◽  
Indigenous Institutions ◽  
Corporate Governance Reform

AbstractThis paper examines the valuation impacts of outside independent directors in Korea, where a regulation requiring outside directors was instituted after the Asian financial crisis. In contrast to studies of U.S. firms, the effects of independent directors on firm performance are strongly positive. Foreigners also have positive impacts. The effects of indigenous institutions such as chaebol or family control are insignificant or negative. This implies that the effect of outsiders depends on board composition as well as the nature of the market in which the firm operates.

When Is a Governmental Mandate not a Mandate? Predicting Organizational Compliance Under Semicoercive Conditions

2020 ◽  
pp. 014920632094857
Author(s):  
Xuanli Xie ◽  
Wei Shen ◽  
Edward J. Zajac
Keyword(s):  
Corporate Governance ◽  
Social Context ◽  
Theoretical Approach ◽  
Specific Form ◽  
Differential Sensitivity ◽  
Independent Directors ◽  
Future Research ◽  
Governance Reform ◽  
Corporate Governance Reform ◽  
Organizational Compliance

While institutional theorists have long viewed governmental mandates as a prototypical coercive pressure generating homogeneous organizational compliance, we suggest that such mandates are often subject to enforcement uncertainty, resulting in a pressure more aptly characterized as “semicoercive” and a compliance result more aptly characterized as heterogeneous. We advance and test a theoretical framework to predict the specific form of heterogeneous compliance in semicoercive contexts, with particular attention to the differential sensitivity of firms to pressures to comply, based on differences in their specific legal, political, and social context. We use the setting of a mandated corporate governance reform in China requiring listed Chinese firms to add independent directors and find general evidence of noncompliance and more specific evidence consistent with the predictions from our sociopolitical framework. We discuss the implications of our theoretical approach and findings for future research on institutional environments, governmental regulations, organizational compliance, and corporate governance.

scholarly journals JAPANESE CORPORATE GOVERNANCE REFORM : WHAT IS REQUIRED FOR EFFECTIVE FUNCTIONING OF OUTSIDE DIRECTORS ?

2019 ◽  
Vol 8 (1) ◽  
pp. 11
Author(s):  
Masaru Suzuki
Keyword(s):  
Corporate Governance ◽  
Boards Of Directors ◽  
Lessons Learned ◽  
Gradual Change ◽  
Governance Reform ◽  
Outside Directors ◽  
Governance System ◽  
Corporate Scandals ◽  
Management Board ◽  
Corporate Governance Reform

<p>The topic of outside directors’ functions has been attracting significant attention for many years now, especially in the discussions about corporate governance reform in Japan. Over the last two decades, most listed Japanese companies have voluntarily introduced outside directors into their boardrooms, in line with the gradual change in an overall corporate governance system toward a monitoring board model moving away from the more traditional management board model. It appears the recent trend is for companies to add outside directors to their boards of directors to increase corporate values.<strong> </strong>In the midst of transforming the management board model into the monitoring board model, closely reexamining the functions of outside directors is necessary. What can be concluded from the lessons learned from recent corporate scandals and the discussions concerning the functions of outside directors is: (1) outside directors should be truly independent from the company’s management; and (2) outside directors need access to the company’s corporate information in order to prevent corporate scandals and to provide appropriate advice to the company’s management. <strong> </strong>This paper aims at considering how to make outside directors more effective and their roles more substantial, based on the history of corporate governance reform in Japan.</p>

scholarly journals Increasing shareholder focus: the repercussions of the 2015 corporate governance reform in Japan

2021 ◽  
Author(s):  
Paweł Mielcarz ◽  
Dmytro Osiichuk ◽  
Karolina Puławska
Keyword(s):  
Corporate Governance ◽  
Employee Turnover ◽  
Job Security ◽  
Prima Facie ◽  
Independent Directors ◽  
Board Independence ◽  
Governance Reform ◽  
Public Companies ◽  
Corporate Governance Reform ◽  
Part Time

AbstractThe corporate governance reform promulgated in 2015 in Japan has contributed to a substantial increase of board independence and a reduction of average board tenure. Our empirical analysis covering 3405 public companies demonstrates that reinvigorated corporate oversight and an increasing post-reform shift towards prioritization of shareholder value have led to a persistent increase of corporate profitability, asset productivity, dividend payouts, acquisitions’ value, and valuation multiples. We also document a significant increase of sensitivity of executives’ and directors’ compensations to the dynamics of firms’ bottom lines. The positive changes are the most pronounced within companies where independent directors constitute a majority on the board. The most notable drawbacks of the reform are a significant reduction in net employment creation and in employee turnover within the largest companies. These might be a possible reason for the documented improvement in corporate performance. The number of part-time employees has also seen a significant increase. While being prima facie focused on reinvigorating the private sector, the corporate governance reform may implicitly undermine the established social contract based on job security. Therefore, our study is important from the perspective of sustainable development of the corporate sector as it demonstrates that while concentrating on improving corporate governance, it is also necessary to consider the business’ social responsibility.

scholarly journals Corporate governance reform in Japan: A behavioral view

2020 ◽  
Vol 16 (1) ◽  
pp. 47-59 ◽  
Author(s):  
Daisuke Asaoka
Keyword(s):  
Corporate Governance ◽  
Law And Economics ◽  
Collective Intelligence ◽  
Governance Reform ◽  
Outside Directors ◽  
Corporate Misconduct ◽  
Listed Firms ◽  
Corporate Governance Reform ◽  
The Board Of Directors ◽  
Behavioral Law And Economics

Corporate governance reform in Japan was triggered by the introduction of a new corporate governance code in 2015. The code is notable for requiring the addition of two or more independent directors to the boards of listed firms, which previously had consisted largely of internally promoted directors enjoying lifetime employment. Applying the framework of behavioral law and economics, we analyze the change from the two aspects of “offense” and “defense” by the board of directors, meaning, respectively, enhancing the quality of group decision-making by producing collective intelligence, and preventing corporate misconduct by introducing the viewpoints of outsiders. The former is not immune to psychological biases such as groupthink and escalation of commitment, but these can be mitigated by ensuring equal consideration of all participants’ viewpoints, and, notably, the participation of women. The latter is affected by other biases, such as obedience to authority and diffusion of responsibility, but establishing an internal system for reporting misconduct, with outside directors at the top, can be effective if the outsiders’ position is perceived as credible.

The Next Stage of Reforms: Korean Corporate Governance in the Post-Asian Financial Crisis Era

2006 ◽  
Vol 1 ◽  
pp. 1-23
Author(s):  
Joongi Kim
Keyword(s):  
Corporate Governance ◽  
Financial Crisis ◽  
Boards Of Directors ◽  
Corporate Control ◽  
Asian Financial Crisis ◽  
Governance Framework ◽  
Quantum Leap ◽  
World Class

AbstractFollowing the 1997 financial crisis, Korea underwent a dramatic overhaul of its corporate governance framework. Drastic changes in its legal and regulatory infrastructure led to more transparent and accountable companies. Boards of directors, shareholders, stakeholders, and auditors began to function effectively and even a corporate control market emerged. Many forms of internal and external corporate governance and market-oriented discipline were established. Korean companies are poised to make a quantum leap to reach the most competitive international levels of corporate governance. This paper argues that Korea must continue its reform efforts. It first discusses the Asian financial crisis and the first stage of reforms that followed. It then explores the areas where Korea needs to undergo the next stage of reforms. It will argue that only then can Korean corporations receive proper valuations. Korean companies have indeed come a long way but lingering perceptions of weak corporate governance thwart them from becoming world-class competitors.

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