Outside Directors and R&D Investment: An Experience after the Corporate Governance Reform in Korea

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. 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. 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.

Download Full-text

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

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109000003458 ◽

2007 ◽

Vol 42 (4) ◽

pp. 941-962 ◽

Cited By ~ 225

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.

Download Full-text

Corporate governance reform in Japan: A behavioral view

Corporate Board role duties and composition ◽

10.22495/cbv16i1art5 ◽

2020 ◽

Vol 16 (1) ◽

pp. 47-59 ◽

Cited By ~ 1

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.

Download Full-text