Relationship between management ownership and firm value among the business group affiliated firms in Korea

Ryu, Keunkwan, and Yoo, Jihye-Relationship between management ownership and firm value among the business group affiliated firms in Korea In this paper, we revisit an old issue on the relation between management ownership and firm's value. The Korean panel data on the business group firms, allows us to compute ownership right and control right separately for each business group affiliated firm. Our measures are different from the similar measures on the Korean firms as in Back et al. (2004) or Joh (2003). Rather than confounding the two offsetting effects, this paper tests convergence of interest hypothesis and entrenchment hypothesis separately. Empirical findings show that, given control right, there is no clear-cut relation between firm value and the inside management ownership for most firms with the inside management ownership less than 42%, that there is a positive relation between firm value and the inside management ownership for those firms with the inside management ownership higher than 42%, and that, given ownership right, profitability decreases as control right increases. Journal of Comparative Economics 39 (4) (2011) 557-576. Seoul National University, Seoul 151-742, Republic of Korea; Mirae Asset Global Investments, Three Pacific Place, 1 Queen's Road East, Hong Kong. (C) 2011 Association for Comparative Economic Studies Published by Elsevier Inc. All rights reserved.