Board structure, ownership and firm performance: Korean evidence

This paper examines the determinants and interrela- tionships among ownership, board structure and corporate performance for a sample of 253 Korean manufacturing firms from 1993 to 2002. For this purpose, the empirical analysis employs the simultaneous equation regressions with two-stage least squares approach by considering the possible endogeneity of ownership and board structure. Two endogenous variables of large shareholder and institutional investor ownership and three endogenous characteristics of board composition, leadership and size are used to capture the monitoring mechanism for corporate governance. Exogenous variables include foreigner ownership, government ownership, risk, profitability, diversification, growth opportunity, leverage, history of the firm, age of directors, firm size, industry and 'chaebol' dummy variables. Firm performance is measured as proxy by Tobin's Q. The simultaneous regressions show that ownership is not a substitute for board structure in corporate governance. It appears that firm performance negatively affects only large shareholder ownership but ownership and board structure do not affect firm performance. This supports that the ownership and board structure are endogenously determined.