Journal of Corporate Finance
Volume 12, Issue 3, June 2006, Pages 660–691
 

Bernard S. Black (a), , , Hasung Jang (1), (b), , Woochan Kim (2), (c),
a Law School, and Red McCombs School of Business, University of Texas at Austin, United States
b Korea University Business School, Anam-Dong, Sungbuk-Ku, Seoul 136-701, Korea
c KDI School of Public Policy and Management, Chongyangri-Dong Dongdaemun-Ku, Seoul 130-868, Korea

http://dx.doi.org/10.1016/j.jcorpfin.2005.08.001

Abstract
This paper contributes to a new literature on the factors that affect firms' corporate governance practices. We find that regulatory factors are highly important, largely because Korean rules impose special governance requirements on large firms (assets > 2 trillion won). Industry factors, firm size, and firm risk are also important. Other firm-specific factors only modestly affect governance even when they are statistically significant. This suggests that many Korean firms do not choose their governance to maximize share price. Among firm-specific factors, the most significant are size (larger firms are better governed) and firm risk (riskier firms are better governed). Long-term averages of profitability and equity finance need are significant, where short-term averages are not. This is consistent with “sticky governance”, in which firms alter their governance slowly in response to economic factors.

Keywords
Korea; Corporate governance; Corporate governance index; Law and finance