Compliance with key corporate governance indicators and firm value: evidence from Korea

초록

Since 2019, the Korea Exchange (KRX) has required listed firms to disclose corporate governance reports following the "Comply or Explain" ("CoE") approach, which allows firms to either comply with governance indicators or provide explanations for non-compliance. Under this approach, firms have the flexibility to choose the optimal governance structure, and capital market participants evaluate the adequacy of such choices in light of each firm's circumstances. This study investigates whether the relationship between compliance with Key Corporate Governance Indicators (KCGIs) and firm value varies depending on firm attributes such as size and ownership concentration. Using data from Korean-listed firms that disclosed mandatory corporate governance reports from 2019 to 2023, we find that compliance with KCGIs, particularly those linked to the board of directors, positively impacts the value of large firms. This effect, however, is not statistically significant for non-large firms. We also find that compliance with KCGIs, especially those related to shareholders and the board, is positively (not significantly) related to the value of firms with high (low) ownership concentration. Our results suggest that investors assess KCGI compliance differently in the context of each firm's unique circumstances, reflecting variations in compliance costs and monitoring needs across firms.

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