Does Corporate Governance Matter? (Evidence from the Korean Market)
- Does Corporate Governance Matter? (Evidence from the Korean Market)
- BLACK, BERNARD S.; Jang, Hasung
- corporate governance; firm valuation; stock return
- Issue Date
- Series/Report no.
- KDI Working Paper Series;02-04
- In this paper, we show that corporate governance is an important factor explaining firm
value and firm return in the Korean market. Such analysis is made possible by making
use of an extensive survey data compiled by the Korea Stock Exchange in the first half of
2001, from which we construct a corporate governance index (0~100) for a cross-section of
540 companies. Evidence shows that a moderate improvement in corporate governance,
say an increase of index by 10 units, on average, results in an increase of market
capitalization by 3 percent of the company’s book asset value or 7 percent of the
company’s book value of common equity. Also, evidence shows that an increase in
corporate governance index by 10 units, on average, increases the level of buy-and-hold
return by 4~6 percent over a year period.
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