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

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  • Sanghoon Lee

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.

Suggested Citation

  • Sanghoon Lee, 2008. "Ownership Structure and Financial Performance: Evidence from Panel Data of South Korea," Working Paper Series, Department of Economics, University of Utah 2008_17, University of Utah, Department of Economics.
  • Handle: RePEc:uta:papers:2008_17
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The ownership crisis redux
      by chris dillow in Stumbling and Mumbling on 2008-10-15 17:39:22

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    Cited by:

    1. repec:sgh:gosnar:y:2017:i:3:p:89-114 is not listed on IDEAS
    2. Khan, Muhammad Kamran & Nouman, Mohammad & Imran, Muhammad, 2015. "Determinants of financial performance of financial sectors (An assessment through economic value added)," MPRA Paper 81281, University Library of Munich, Germany.
    3. Durand, Robert B. & Koh, SzeKee & Tan, Paul LiJian, 2013. "The price of sin in the Pacific-Basin," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 899-913.

    More about this item

    Keywords

    Ownership Structure; Ownership Concentration; South Korea;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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