The Effect of Board Structure on Firm Value: A Multiple Identification Strategies Approach Using Korean Data

The Effect of Board Structure on Firm Value: A Multiple Identification Strategies Approach Using Korean Data

Bernard Black, Woochan Kim

Series number :

Serial Number: 
179/2007

Date posted :

June 01 2007

Last revised :

SSRN Share

Keywords

  • Korea • 
  • outside directors • 
  • audit committees • 
  • Corporate governance • 
  • board of directors

Outside directors and audit committees are widely considered to be central elements of good corporate governance. We use a 1999 Korean law as an exogenous shock to assess how board structure affects firm market value. The law mandates 50% outside directors and an audit committee for large public firms, but not smaller firms.

We study how this shock affects firm market value, using event study, difference-in-differences, and instrumental variable methods, within a regression discontinuity approach. The legal shock produces large share price increases for large firms, relative to mid-sized firms; share prices jump in 1999 when the reforms are announced.

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Published in

Published in: 
Publication Title: 
Journal of Financial Economics
Description: 
2011

Authors

Professor
Real name: 
Bernard Black
Fellow, Research Member
Northwestern University Law School and Kellogg School of Management Law School