IDEAS home Printed from
   My bibliography  Save this article

Outside Directors, Ownership Structure and Firm Profitability in Korea


  • Dong-Sung Cho
  • Jootae Kim

    (Dankook University in Korea)


The contribution of outside directors to firm performance has been shown to be inconsistent. Korean companies first began in 1998 to introduce outside directors to carry out governance reform. This paper analyses the impact of outside directors on corporate performance during the governance reform movement undertaken in Korea in 1999 as well as the moderating effect of the large shareholder and managerial ownership rate. We hypothesised a positive relationship between outside director effectiveness (outside director participation rate) and firm profitability, a negative moderating effect in terms of large shareholder ownership and managerial ownership, and a positive moderating effect when it comes to blockholder ownership. This moderating relationship is considered in order to investigate the role of large shareholders under the Korean governance structure. Our empirical analysis showed that outside directors had a weak positive impact, and that a large shareholder ownership rate and a block shareholder ownership rate moderated this relationship in a negative fashion. The managerial ownership rate did not show any significant moderating effects. We thus conclude that it is too early to assess the impact of outside directors on corporate performance, and that Korean companies exhibit an "owner-controlled" governance structure; that is, they are governed by large shareholders who have demonstrated a resistance to attempts to bring about governance reform through such means as the introduction of outside directors. Outside shareholders were found to possess insufficient power to monitor large controlling shareholders. This paper seeks to make a contribution to the field by conducting an analysis of governance structure in Korea in the aftermath of the currency crisis, as well as of outside directors in emerging economies, a subject rarely dealt with in governance studies. Copyright (c) 2007 The Authors; Journal compilation (c) 2007 Blackwell Publishing Ltd.

Suggested Citation

  • Dong-Sung Cho & Jootae Kim, 2007. "Outside Directors, Ownership Structure and Firm Profitability in Korea," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(2), pages 239-250, March.
  • Handle: RePEc:bla:corgov:v:15:y:2007:i:2:p:239-250

    Download full text from publisher

    File URL:
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Amon Chizema & Jootae Kim, 2010. "Outside Directors on Korean Boards: Governance and Institutions," Journal of Management Studies, Wiley Blackwell, vol. 47(1), pages 109-129, January.
    2. Byung-Seong Min & Peter Verhoeven, 2013. "Outsider Board Activity, Ownership Structure and Firm Value: Evidence from Korea," International Review of Finance, International Review of Finance Ltd., vol. 13(2), pages 187-214, June.
    3. Ramiz ur Rehman & Inayat Ullah Mangla, 2010. "Corporate Governance and Performance of Financial Institutions in Pakistan: A Comparison between Conventional and Islamic Banks in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(4), pages 461-475.
    4. Young Kyun Chang & Won-Yong Oh & Jee Hyun Park & Myoung Gyun Jang, 2017. "Exploring the Relationship Between Board Characteristics and CSR: Empirical Evidence from Korea," Journal of Business Ethics, Springer, vol. 140(2), pages 225-242, January.
    5. Min, Byung S. & Bowman, Robert G., 2015. "Corporate governance, regulation and foreign equity ownership: Lessons from Korea," Economic Modelling, Elsevier, vol. 47(C), pages 145-155.
    6. repec:eee:iburev:v:27:y:2018:i:1:p:269-280 is not listed on IDEAS
    7. repec:gam:jsusta:v:9:y:2017:i:10:p:1883-:d:115599 is not listed on IDEAS
    8. Mukhopadhyay, Jhuma & Chakraborty, Indrani, 2017. "Foreign institutional investment, business groups and firm performance: Evidence from India," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 454-465.
    9. repec:eee:reveco:v:51:y:2017:i:c:p:82-98 is not listed on IDEAS
    10. Isabel-María García-Sánchez, 2010. "The effectiveness of corporate governance: board structure and business technical efficiency in Spain," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 18(3), pages 311-339, September.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:corgov:v:15:y:2007:i:2:p:239-250. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.