Does the Intensive Board Monitoring Always Improve the Shareholder Wealth?

Ji Hye Lee; Byun， Hee Sub

doi:10.23842/jif.2017.28.4.002

This study investigates the effect of intensive board monitoring, which is measured by the structure of monitoring committees (audit committee, outside director nomination committee, and compensation committee) in the board, on the shareholder wealth in Korea. More importantly, we confirm how this effect can be changed by the various firm characteristics related to the managerial incentives and the efficiency of corporate control mechanisms. Based on this approach, we provide the alternative arguments to the multilateral views to understand the benefits and costs of board monitoring in emerging markets. Empirically, we find that the high proportion of outside directors in monitoring committees has the positive effect on the firm value. However, this effect decreases or disappears as firms’ age, leverage ratio, volatility of cash flow, competitive threats, and the ownership of controlling shareholders increases, while the effect gets stronger as firms’ free cash flow, the opaqueness of assets and the ownership of institutions become greater. These results mean that the value enhancing the effect of board monitoring depends on the firm characteristics which are closely related to the possibility of agency problem and the necessity of growth strategy of the firm. Additionally, confirming the effect on payout policy, we obtain the similar result in the interaction between board monitoring and firms’ age, volatility of cash flow, and ownership of controlling shareholders. Looking beyond this study, our results support the argument of prior literature which suggests that the one size does not fit all: the agency problem will not be solved by one specific control mechanism, therefore we should consider the practical complexity of corporate management and various factors.

Citation status

KCI Citation Counts (0)
REFERENCES (41)
열림/닫힘 버튼
* 2021년 이후 발행 논문의 참고문헌은 현재 구축 중입니다.

[journal] 김문태 / 2009 / The Impacts of Audit Committees and Outside Directors on Managers' Perks and Efficiency Ratio / 회계정보연구 / 한국회계정보학회 27(2) : 211~235

[journal] 신호영 / 2006 / A Study on the Relationships between New Audit Committee Establishment and Earnings Management / 회계정보연구 / 한국회계정보학회 24(1) : 43~66

[journal] 이상철 / 2009 / Determinants of Compensation Committee Formation: Focusing on Agency Problems and Monitoring Incentives / 회계저널 / 한국회계학회 18(4) : 161~186

[journal] 임혜경 / 2014 / Influence of Installing Auditing Committee on Firm Value and Business Performance / 세무회계연구 / 한국세무회계학회 (41) : 71~87

[journal] 홍광헌 / 2010 / The Board of Director Structure and Firm Value / 대한경영학회지 / 대한경영학회 23(6) : 3083~3100

[journal] Adams, R. / 2007 / A theory of friendly boards / Journal of Finance 62(1) : 217~250

[journal] Aslan, H. / 2011 / The characteristics of informed trading: Implications for asset pricing / Journal of Empirical Finance 18(5) : 782~801

[journal] Barth, M. / 2001 / Analyst Coverage and Intangible Assets / Journal of Accounting Research 39(1) : 1~34

[journal] Black, B. / 2012 / The effect of board structure on firm value: A multiple identification strategies approach using Korean data / Journal of Financial Economics 104(1) : 203~226

[journal] Black, B. / 2015 / How corporate governance affect firm value? Evidence on a self-dealing channel from a natural experiment in Korea / Journal of Banking & Finance 51 : 131~150

[journal] Brickley, J / 1997 / Leadership structure: Separating the CEO and Chairman of the Board / Journal of Corporate Finance 3(3) : 189~220

[journal] Burkart, M. / 2003 / Family firms / Journal of Finance 58(5) : 2167~2201

[journal] Byrd, J. / 1992 / Do outside directors monitor managers?: Evidence from tender offer bids / Journal of Financial Economics 32(2) : 195~221

[journal] 변희섭 / 2012 / How Does Product Market Competition Interact with Internal Corporate Governance?: Evidence from the Korean Economy / Asia-Pacific Journal of Financial Studies / 한국증권학회 41(4) : 377~423

[journal] 변희섭 / 2013 / Ownership Structure, Intensive Board Monitoring, and Firm Value: Evidence from Korea / Asia-Pacific Journal of Financial Studies / 한국증권학회 42(2) : 191~227

[journal] Chae, J. / 2009 / How corporate governance affects payout policy under agency problems and external financing constraints / Journal of Banking and Finance 33(11) : 2093~2101

[journal] Cheng, S. / 2008 / Board size and the variability of corporate performance / Journal of Financial Economics 87(1) : 157~176

[journal] Cotter, J. / 1997 / Do independent directors enhance target shareholder wealth during tender offers? / Journal of Financial Economics 43(2) : 195~218

[journal] Demsetz, H. / 1985 / The Structure of Corporate Ownership: Causes and Consequences / Journal of Political Economy 93(6) : 1155~1177

[journal] Dyck, A. / 2004 / Private Benefits of Control: An International Comparison / Journal of Finance 59(2) : 537~600

[journal] Faleye, O. / 2011 / The costs of intense board monitoring / Journal of Financial Economics 101(1) : 160~181

[journal] Fama, E. / 1973 / Risk, Return, and Equilibrium: Empirical Tests / Journal of Political Economy 81(3) : 607~636

[journal] Giroud, X. / 2011 / Corporate Governance, Product Market Competition, and Equity Prices / Journal of Finance 66(2) : 563~600

[book] Grossman, S. / 1982 / Corporate Financial Structure and Managerial Incentives in The Economics of Information and Uncertainty / University of Chicago Press

[journal] Harford, J. / 1999 / Corporate Cash Reserves and Acquisitions / Journal of Finance 54(6) : 1969~1997

[journal] Jensen, M. / 1976 / Theory of the firm: Managerial behavior, agency costs and ownership structure / Journal of Financial Economics 3(4) : 305~360

[journal] Jensen, M. / 1986 / Agency Costs of Free Cash Flow, Corporate Finance and Takeovers / American Economic Review 76(2) : 323~329

[journal] Jensen, M. / 1993 / The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems / Journal of Finance 48(3) : 831~880

[journal] Karuna, C. / 2007 / Industry product market competition and managerial incentives / Journal of Accounting and Economics 43(2-3) : 275~297

[journal] Khanna, T. / 2000 / Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups / Journal of Finance 55(2) : 867~891

[journal] Klapper, L. / 2004 / Corporate governance, investor protection, and performance in emerging markets / Journal of Corporate Finance 10(5) : 703~728

[book] Mace, M. / 1971 / Directors: Myth and Reality / Harvard Business School Press

[journal] Morck, R. / 1988 / Management ownership and market valuation: An empirical analysis / Journal of Financial Economics 20 : 293~315

[journal] Myers, S. / 1984 / Corporate financing and investment decisions when firms have information that investors do not have / Journal of Financial Economics 13(2) : 187~221

[journal] Pathan, S. / 2009 / Strong boards, CEO power and bank risk-taking / Journal of Banking & Finance 33(7) : 1340~1350

[journal] Pound, J. / 1988 / Proxy contests and the efficiency of shareholder oversight / Journal of Financial Economics 20 : 237~265

[journal] Raheja, C. / 2005 / Determinants of Board Size and Composition: A Theory of Corporate Boards / Journal of Financial and Quantitative Analysis 40(2) : 283~306

[journal] Richardson, S. / 2006 / Over-Investment of Free Cash Flow / Review of Accounting Studies 11(2-3) : 159~189

[journal] Shivdasani, A. / 1993 / Board composition, ownership structure, and hostile takeovers / Journal of Accounting and Economics 16(1-3) : 167~198

[journal] Shleifer, A. / 1997 / A Survey of Corporate Governance / Journal of Finance 52(2) : 737~783

[journal] Weisbach. M. / 1988 / Outside directors and CEO turnover / Journal of Financial Economics 20 : 431~460

KJC Korea
Journal Central

Statistics

Tools

Sharing

Issue List

Citation status