Search Results (32)

In the modern corporation, understanding sustainable cost management practices is essential for promoting economic resilience and resource efficiency. This study investigates how ownership structures influence the behavior of selling, and general and administrative (SG&A) costs during periods of sales fluctuations in South Korean firms, with particular attention to Chaebols. Drawing upon agency theory and corporate governance perspectives, we examine whether proxies for agency costs, namely, free cash flow, asset utilization ratios, and operating expense ratios, explain variations in SG&A cost responses to changes in revenue. Utilizing a panel dataset of 4279 firm-year observations from KOSPI-listed companies over the period 2011–2021, we employ Pooled Ordinary Least Squares (OLS), Fixed Effects, Random Effects, and Generalized Method of Moments (GMM) estimations to model SG&A cost behavior. The analysis incorporates regression-based interaction terms that capture asymmetric cost adjustments during sales declines, commonly referred to as cost stickiness. Our findings indicate that firms with concentrated ownership, such as Chaebols, exhibit significantly lower SG&A cost stickiness, reflecting stronger financial discipline and more efficient resource allocation. In contrast, firms with dispersed ownership demonstrate more pronounced cost stickiness, consistent with governance frictions and managerial discretion. These results emphasize the moderating role of ownership structure in cost behavior and highlight its implications for sustainable corporate governance. Our study contributes to the literature on cost management and financial sustainability by offering empirical insights from a distinctive institutional setting. Policy recommendations include enhancing internal controls, promoting transparent cost practices, and encouraging shareholder oversight to reinforce long-term efficiency. Full article

This study examines whether market competition reduces managerial slack under downward-sticky CEO pay schemes, thus mitigating the potentially negative link between downward-sticky pay and shareholder’s value. Using data on the Korean product market, which has been dominated by business conglomerates known as ‘chaebols’, we first find that downward-sticky pay is prevalent in underperforming firms and affects shareholder value negatively. Then, we find that a higher level of market competition alleviates the value-deteriorating effect of downward-sticky pay. Overall, the findings from our study imply that market competition as an external mechanism of corporate governance threatens still highly paid CEOs with worsening performance and motivates them implicitly to work harder. Together with a need for shareholders’ influence on downward-sticky pay, this study sheds light on the importance of market competition regimes in developing countries where legal protection for shareholders and internal governance structures are weak. Full article

This study investigates the interdependencies between debt capital and dividend policy as complementary factors influencing firm value among corporations listed on the Korea Composite Stock Price Index (KOSPI). Using Tobin’s Q as a firm value metric and employing robust econometric techniques (OLS, 2-SLS, and GMM), the analysis reveals that while debt and dividend policies independently reduce firm value, their interaction produces a synergistic effect that increases value. The findings further indicate the dual role of Chaebol ownership structures, which, despite their association with lower firm value, mitigate the negative effects of financial policies. Additionally, firm size is found to negatively impact value, whereas free cash flow has a significant positive effect. By disentangling the complex dynamics of capital structure, dividend strategies, and ownership configurations, this study offers actionable insights for managers, investors, and policymakers. It emphasizes the importance of balanced financial practices and governance reforms tailored to concentrated ownership environments. Full article

This study examines the relationship between corporate governance (CG) and agency costs using Korean market data, particularly for chaebol firms. The final sample includes 660 firm-year observations between 2016 and 2020 for Korean non-financial firms listed on the Korean Composite Stock Price Index (KOSPI). This study employs an ordinary least-squares panel data regression model using two proxies for agency costs, namely, asset utilization ratio and operating expense ratio, and six CG individual metrics as independent variables (CG score, protection of shareholder rights, board structure, disclosure, audit organization, and managerial discretion and error management). We find that firms with high CG experience lower agency costs than those with low CG. Moreover, our evidence suggests that firms can decrease agency costs by improving the quality of CG. The results of our regression model also support the idea that CG is effective in reducing agency costs for chaebol firms but not for non-chaebol firms. Finally, our findings suggest that the implementation of effective CG mechanisms in firms might improve managerial behavior through better decision-making to maximize the value of firms. Full article

This study investigates the relationship between dividend policy, firm performance, and value within the Korean market, taking into account the unique context of Chaebol ownership structures. Utilizing a robust dataset of 5478 observations from the Korean Composite Stock Price Index, our empirical analysis employs advanced regression models, revealing distinctive effects of various dividend policy measures through the lenses of interest alignment and managerial entrenchment hypotheses. Surprisingly, while cash dividend payments exhibit a robust positive impact on Tobin’s Q and market-to-book ratios, suggesting an overall positive link with market valuations, a closer inspection reveals divergent impacts for Chaebol and non-Chaebol firms. In Chaebol entities, dividend policy proxies consistently demonstrate positive effects on performance metrics, aligning with the interest alignment hypothesis and highlighting strategic signaling efforts. Conversely, non-Chaebol firms exhibit intriguingly negative impacts, supporting the managerial entrenchment hypothesis and implying potential challenges to market value. Firms should prioritize transparent communication on dividend policies for improved investor decision making and enhanced corporate governance in the dynamic Korean market. Full article

Environmental, social, and corporate governance (ESG) has become essential for corporate sustainability. Among ESG activities, we focus on governance structure since firms can properly engage in activities related to environmental and social responsibility only when their corporate governance structures are well established. Outside directors play an important role in governance structure since they monitor the management and provide expertise to the board of directors. In this study, we pay particular attention to the compensation of outside directors, which reflects the effort, expertise, and independence of outside directors. Based on data from listed firms on the Korea Stock Exchange in South Korea between 2014 and 2020, we examine the association between outside directors’ compensation and ESG performance in certain firms with unique governance structures, namely, chaebols (or family firms). We find that the compensation of outside directors is positively associated with ESG performance, implying that outside directors’ compensation motivates effective monitoring and advisement of management and has an incremental effect on ESG performance. We suggest that the compensation of outside directors is one of the key factors that can significantly affect ESG performance. Therefore, investors and policymakers may evaluate whether a firm is doing well in terms of ESG activities by examining the compensation of outside directors. Full article

This study examined the effect of corporate governance on labor investment efficiency, using 5178 firm-year samples from companies listed on the Korean stock market over the period from 2011 to 2019. In addition, the relationship between corporate governance and labor investment efficiency according to whether the company belongs to a chaebol group was examined. Corporate governance was measured using KCGS’s corporate governance ratings. This study tried to verify whether labor investment inefficiency due to information asymmetry is improved by excellent corporate governance. The results show that in the case of the entire sample, the relationship between corporate governance and labor investment efficiency was significant in the positive (+) direction. That is, it is an empirical result indicating that a company with a sound governance structure is making effective labor investment. The samples were divided into overinvestment samples and underinvestment samples, and the relationship between corporate governance and labor investment efficiency was analyzed separately in the two samples. According to the results, the positive relationship between corporate governance and labor investment efficiency was significant only in the case of underinvestment samples. In addition, the positive relationship between corporate governance and labor investment efficiency was more statistically significant in the case of companies belonging to a chaebol group. This study provided implications for authorities, shareholders, and investors, etc., in that it suggests the role of corporate governance as a mechanism to alleviate the agency problem between managers and investors. Full article

Environmental, social, and governance (ESG) metrics are widely used to measure the firms’ social performance. In this regard, donation expenses are one of the outcomes for the firms’ effort to build, grow, and maintain the social value. However, firms may expense a trivial or minimum amount of donations, considering the corporate size, in order to disguise themselves as a “good company”. In this paper, exploiting 2010–2019 Korean Stock Exchange (KSE) market listed companies’ financials and ESG scores, we examine whether Chaebol firms with good governance “actually” spend more donation expenses. We predict and find that good governance does not actually lead to greater donation expenses among Chaebol firms, despite the positive relations between governance and donation expenses in general. Overall, our findings highlight that good Chaebol companies determined by ESG metrics may not be real charitable companies. Our findings provide counterevidence against the notion that firms with a higher ESG score are more likely to be charitable. Full article

Corporate social responsibility (CSR) encompasses activities through which a firm ultimately achieves sustainable management by improving the society and environment. Contrary to the general perception that CSR activities can improve only the enterprise value (EV), they can also be strategically deployed based on agency problems (situational factors). Specifically, by focusing on the nature of related party transactions that exhibit high tendencies to introduce agency problems, this study analyzes whether South Korean firms that engage in such transactions perform CSR activities more actively than those that do not. The empirical analysis reveals that firms that engage in related party transactions exhibit increased CSR activity scores, indicating that managers are more likely to deploy CSR activities as a tool for managing their image and concealing or embellishing illicit corporate transactions. Hence, CSR activities undertaken at the expense of shareholders may be opportunistically exploited as a tool for positively embellishing a firm’s image. However, it is observed that chaebol companies do not strategically exploit CSR activities, despite being engaged in related party transactions. Thus, chaebol companies that are registered with a large business group and under the supervision system of the government are unlikely to opportunistically exploit CSR activities. Full article

We examine the association between carbon emissions, carbon disclosures, and firm value for Korean firms, with a particular interest in chaebols, a special type of Korean conglomerate. Using hand-collected carbon emissions and firm-specific data for 841 Korean firms, including 514 chaebols and 335 non-chaebols, we find a significantly positive relationship between carbon emissions and firm value among chaebol affiliates. This result contrasts with previous findings conducted in advanced markets, where investors consider carbon emissions to be destructive. In terms of the voluntary disclosure policy, we find that companies with good environmental performance tend to disclose carbon emissions voluntarily. We further argue that these findings originate from the specific business atmosphere in Korea. Our results support the traditional view of corporations in terms of environmental policy and highlight the importance of firm characteristics and historical developments in the analysis of environmental policy. Full article

This study examines whether the designation as the most admired firms affects firms’ tax management behavior. Based on 6880 Korean firms from 2014 to 2018, we regressed to analyze the relationship between the designation as the most admired firms and tax avoidance. Designation as the most admired firm is considered to result in a high reputation, and reputation is one of the intangible assets when assessing the firm value. We found that the firms designated as the most admired firms are reluctant to avoid taxes. Reputable firms are expected to be consistent with their fame. Therefore, those firms are less engaged in unethical or immoral tax avoidance. We also found a positive effect of the index for environmental, social, and governance on the relationship between the designation as the most admired firms and tax avoidance. Environmental, social, and governance activities are the managements’ choice and are a part of corporate activities, whereas firms’ reputations result from enterprise-wide activities. The findings suggest that the designation as the most admired firms with regard to environmental, social, and governance activities is considered highly reputable and results in deciding to improve corporate sustainability in tax management. The relationship between the designation as the most admired firms and tax avoidance is strengthened in an information environment where the firms are Chaebol-affiliated and in high information asymmetry. Full article

This study empirically examines the relationship between corporate sustainable management (CSM) and dividend policy. Among the various motivations related to dividends, this study examines the relationship between CSM and dividend policy based on the agency and signaling theory. After examining the relationship between CSM and dividend policy, we investigate whether belonging to a large business group (chaebol group) has a significant effect on the relationship between CSM and dividend policy. The analysis period is from 2011 to 2018, and the ESG ratings of the Korea Corporate Governance Service are used as proxies for CSM. The empirical results show that CSM and dividends have a significant relationship in the positive direction. This means that firms with excellent CSM activities have higher dividend levels than those that do not. Furthermore, the association between CSM and dividends is more negative for firms belonging to a chaebol group. This indicates that the positive relationship between CSM and dividends in a firm that belongs to a chaebol group is weakened. This means that the relationship between CSM and dividends in the group belonging to the chaebol group is weakened. It belongs to the group of conglomerates, meaning that the relationship between the amount of dividends and CSM weakened. Our study focuses on CSM as a determinant of dividends, and examines the effects of belonging to a chaebol group in the relationship between CSM and dividends. Given that resolving the interest incompatibility between investors and managers is the focus of corporate governance, dividend policies can be used as a method for resolving the interest incompatibility between investors and managers. Full article

We analyzed whether a firm’s engagement in socially responsible activities, as measured by environmental, social, and corporate governance (ESG) scores, influences their tendency to avoid tax in the Korean financial market. We found a negative relationship between Korean firms’ ESG scores and tax avoidance in terms of book-tax income difference during the sample period between 2011 and 2017. This result implies that firms with good CSR performance would tend not to manipulate taxable profits, which is in line with corporate culture theory. More interestingly, this trend has become more apparent for chaebol-affiliated firms, a special type of Korean conglomerate, than non-chaebol firms. Full article

This study analyzes the corporate social responsibility (CSR) activities of family-owned firms by investigating public companies in Korea. By nature of their governance structures, which are aligned with the interests of their shareholders and management, family firms are managed from a long-term perspective based on a sense of ownership. While CSR implementation entails investment costs, it ultimately increases firm value by enhancing the firm’s reputation and brand image. As such, family firms are expected to be more active than non-family firms regarding CSR investments. We conducted an empirical analysis based on the Korean Economic Justice Institute Index (KEJI Index) from the Citizens’ Coalition for Economic Justice and found that family firms’ CSR scores were higher than those of non-family firms. This indicates that family firms are relatively more active in their CSR activities, as they are managed from a long-term viewpoint. However, family firms classified as large-scale corporate groups (chaebols) had lower CSR activity levels. This is because when family firms are classified as corporate groups, they can enjoy monopolistic market positioning through their subsidiaries, and are thus more likely to utilize the resources originally required for CSR in other projects that conform to the pursuit of firm interests. Full article

This study examines whether related-party transactions (RPTs) impact the value of firms’ cash holdings. Using a 2011–2018 sample of Korean public firms, we find that greater RPTs lead to lower cash holdings value. In particular, this decline is more pronounced in Korean chaebol firms than in non-chaebol firms. Our findings suggest that a unique and complex corporate governance structure of chaebol firms makes it difficult for outside investors to monitor firms’ internal cash management decisions, resulting in a negative valuation of cash holdings. This study contributes to the extant literature by providing additional evidence that RPTs in chaebol firms with severe agency problems may lower the value of cash holdings. Full article