The Value‐relevance of Earnings and Book Value, Ownership Structure, and Business Group Affiliation: Evidence From Korean Business Groups

Kee‐Hong Bae · Seok Woo Jeong

142 citations0/0 files storedJournal of Business Finance &amp Accounting

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Auditing, Earnings Management, Governance Corporate Finance and Governance Financial Reporting and Valuation Research

Abstract

Abstract: We investigate the quality of two primary accounting summary measures, i.e., earnings and book value, provided by firms belonging to Korean business groups (chaebols). We find that the value‐relevance of earnings and book value is significantly smaller for firms affiliated with business groups. We also find that cross‐equity ownership (a proxy for the agency problem between controlling and minority shareholders) negatively affects value‐relevance, while foreign equity ownership (a proxy for the monitoring effect) positively affects value‐relevance. This evidence is consistent with the view that the poor quality of earnings and book value provided by chaebol‐affiliated firms is due to the inherently poor governance structure of chaebols.

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References

1983Separation of Ownership and Control 1973Risk, Return, and Equilibrium: Empirical Tests 1999Corporate Ownership Around the World 1980Agency Problems and the Theory of the Firm 1997Legal Determinants of External Finance 2000Investor protection and corporate governance 2003Earnings management and investor protection: an international comparison 1995Earnings, Book Values, and Dividends in Equity Valuation*

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