The Effect of Corporate Ownership Structure on the Profitability: Comparison between KSE and KOSDAQ Listed Firms
Shin Jo (Professor, Graduate School of Information, Yonsei University)
Jee-Hyung Jo (Master's course, Graduate School of Information, Yonsei University)
Woo-Jin Jung (Research Professor, Graduate School of Information, Yonsei University)
This paper examines the relationship between ownership structure and the profitability(ROE) of a firm by analyzing the panel data composed of 571 manufacturing firms in KSE(Korea Stock Exchange) and KOSDAQ listed firms for the period of 2007-2014. The major findings are as follows; (1) For KSE firms, we find that CEO stockholding and ROE have an inverted-U shape relationship, while the largest shareholder's portion and ROE have a U shape relationship. The results jointly support incentive alignment hypothesis and entrenchment hypothesis depending upon the level of CEO & the largest shareholder's shares. (2) For KOSDAQ firms, CEO stockholding and ROE have insignificant relationship, whereas the largest shareholder's portion is positively related to ROE. The results suggest that the agency problems are not serious in KOSDAQ firms mainly because the founders with entrepreneurship and long-term vision are still in charge of the business. This study contributes to the existing literature by explicitly considering both CEO and the largest shareholder's shares to find out the effects of ownership structure on the profitability, In addition, this study showed for the first time that ownership structure affects the profitability in different ways between KSE and KOSDAQ firms.
Corporate Ownership Structure, Profitability, Agency Costs, KOSPI, KOSDAQ
Korean Corporation Management Review, Vol.25 No.1, pp.53-79