Tacit vigilance in an emerging economy: An institution-based perspective of passive blockholder monitoring

Hyunjin Oh, Chune Young Chung and Amirhossein Fard

Research in International Business and Finance, 2023, vol. 64, issue C

Abstract: We argue that the relative effectiveness of active and passive blockholder monitoring is driven by the institutional context of the Korean financial market, characterized by the dominance of chaebols and the pressure sensitivity of institutional blockholders. We believe that the extensive business ties between chaebols and blockholders effectively increase the cost of shareholder activism in Korea, making passive monitoring a more applicable governance mechanism for blockholders. We test whether passive monitoring affects a firm’s earnings quality, represented by earnings persistence, value relevance, and timeliness. Furthermore, we decompose institutional shareholding by portfolio turnover and nationality and then determine the monitoring channel that influences earnings quality. We find that passive monitoring by domestic blockholders is most effective in improving earnings quality in Korea. In addition, our findings highlight that the difference between the institutional context of developed economies and that of Korea results in different outcomes related to blockholder monitoring.

Keywords: Chaebol; Corporate governance; Earnings persistence; Institutional theory; Timeliness; Value relevance (search for similar items in EconPapers)
JEL-codes: G15 G23 G30 M41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:64:y:2023:i:c:s0275531922002537

DOI: 10.1016/j.ribaf.2022.101867

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