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How does corporate governace pay off? Evidence from Korean stock listings


Paul Moon Sub Choi
Ewha School of Business, 52 Ewhayeodae-gil, Seodaemun-gu, Seoul 03760, (the Republic of Korea).
,
Joung Hwa Choi
Johnson Graduate School of Management, Cornell University, Ithaca, New York 14853, USA
,
Mookyong Son
Department of Economics, Michigan State University, East Lansing, Michigan 48824, USA
. (29 DEC 2016).


doi: http://dx.doi.org/10.21511/imfi.13(4-1).2016.08

Abstract
Corporate governance is an envelope for the mechanisms, processes and relations through which corporations are controlled and guided. Consequently, corporate governance affects operational performance and, in turn, stock returns, as Gompers et al. (2003) find. In this research, we use the Korea Corporate Governance Stock Price Index (KOGI) to test a possible linkage between corporate governance and shareholder wealth in Korea.Factor mimicking portfolios sorted per KOGI are constructed to estimate a corporate governance risk factor (good minus bad). By augmenting this new factor to the existing factor models (Fama and French, 1993; Carhart, 1997) to fit multiply imputed data, we find evidence that corporate governanceinfluences stock pricing in Korea.

Keywords: CG; Risk factor; Factor-mimicking portfolio; Long-short portfolio; Multiple imputation.
JEL Classification: G11, G12, G34, C11.