Ownership Structure and Financial Performance: Evidence from Panel Data of South Korea

Sanghoon Lee

Working Paper Series, Department of Economics, University of Utah from University of Utah, Department of Economics

Abstract: The study seeks to examine the effect of equity ownership structure on firm financial performance in South Korea. I focus on the role of two main dimensions of the ownership structure- Ownership concentration (i.e., the distribution of shares owned by majority shareholders) and identity of owners (especially, foreign investors and institutional investors). Using panel data for South Korea in 2000--2006, I find that firm performance measured by the accounting rate of return on assets generally improves as ownership concentration increases, but the effects of foreign ownership and institutional ownership are insignificant. I also find that there exists a hump-shaped relationship between ownership concentration and firm performance, in which firm performance peaks at intermediate levels of ownership concentration. The study provides some empirical support for the hypothesis that as ownership concentration increases, the positive monitoring effect of concentrated ownership first dominates but later is outweighed by the negative effects, such as the expropriation of minority shareholders. The empirical findings shed light on the role ownership structure plays in corporate performance, and thus offer insights to policy makers interested in improving corporate governance systems in an emerging economy such as South Korea.

Keywords: Ownership Structure; Ownership Concentration; South Korea (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2008
New Economics Papers: this item is included in nep-cfn and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Published in Journal of Corporate Ownership and Control, Winter 2008, 6(2)

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Persistent link: https://EconPapers.repec.org/RePEc:uta:papers:2008_17

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