Control, Ownership, and Firm Performance: the Case of Korea

Since the Asian economic crisis in 1997, some have argued that the poor corporate governance system was a contributing cause of the crisis. They claim that the weakness of minority shareholders' rights protection and the lack of market discipline for poor performing firms in the region made it easier for controlling shareholders to divert resources and to pursue their private interests rather than firm value maximization. Consequently, the corporate sector suffered from poor performance and weakened the financial system. Despite such claims, few studies have empirically examined the size of these conflicts of interests among shareholders and how they affect firm performance. Using the newly available ownership information and financial statements on 5858 Korean firms in non-financial sectors between 1993-1997, this paper examines how the conflicts among shareholders affect firm profitability. After documenting the ownership patterns, the paper investigates whether firm performance suffers when the disparity between control and ownership increases. When firm size, capital structure, and industry and firm characters are controlled for, the empirical tests show that firms with concentrated ownership by controlling shareholders exhibit a higher profitability than firms with less concentrated ownership. Publicly traded firms show lower performance than privately held firms. These tests also show that business groups of horizontally and vertically distributed firms (chaebols) have lower profitability than independent firms. Moreover, the study also identifies a mechanism through which firm resources are wasted. Firms that divert their assets through financial investment to their affiliated firms show weaker performance. Transfer of resources from publicly traded firms to group affiliated firms show even weaker performance. These results are consistent with the argument that controlling shareholders with small stakes in the firms pursued their private interests at the expenses of other shareholders.

Transarterial chemoembolization versus resection for intermediate-stage (BCLC B) hepatocellular carcinoma

Background/Aims: Several studies have suggested that surgical resection (SR) can provide a survival benefit over transarterial chemoembolization (TACE) for hepatocellular carcinoma (HCC) at the intermediate stage according to the Barcelona Clinic Liver Cancer (BCLC) staging system. However, the criteria for SR remain to be determined. This study compared the long-term outcome of intermediate-stage HCC patients treated by either TACE or SR as a primary treatment modality, with the aim of identifying the patient subgroup that gained a survival benefit by either modality. Methods: In total, 277 BCLC intermediate-stage HCC patients treated by either TACE (N=225) or SR (N=52) were analyzed. Results: The overall median survival time was significantly better for SR than TACE (61 vs. 30 months, P=0.002). Decision-tree analysis divided patients into seven nodes based on tumor size and number, serum alpha-fetoprotein (AFP) level, and Child-Pugh score, and these were then simplified into four subgroups (B1–B4) based on similarities in the overall hazard rate. SR provided a significant survival benefit in subgroup B2, characterized by ‘oligo’ (2–4) nodules of intermediate size (5–10 cm) when the AFP levels was <400 ng/ml, or ‘oligo’ (2–4) nodules of small to intermediate size (<10 cm) plus a Child-Pugh score of 5 when the AFP level was ≥400 ng/mL (median survival 73 vs. 28 months for SR vs. TACE respectively; P=0.014). The survival rate did not differ significantly between SR and TACE in the other subgroups (B1 and B3). Conclusion: SR provided a survival benefit over TACE in intermediate-stage HCC, especially for patients meeting certain criteria. Re-establishing the criteria for optimal treatment modalities in this stage of HCC is needed to improve survival rates

Strategic Managerial Incentive Compensation In Japan: Relative Performance Evaluation And Product Market Collusion

In an oligopolistic product market, shareholders strategically use information on rival firms' performances when designing management-incentive contracts. When shareholders use industry performance information through relative performances evaluation (RPE), they evaluate their manager's effort more easily, but hinder collusive behavior in the product market. However, when compensation is positively linked to the industry performance through strategic group performance evaluation (SGPE), the credibility of a manager's commitment to product market collusion increases, and the sustainability of a collusive outcome increases. I test how industry performance affects management-incentive compensation using the data from 796 Japanese firms during the period 1968 to 1992. The results show that management compensation is positively linked to industry profit, suggesting the use of SGPE in management-incentive compensation. Cross-sectional analysis shows that the positive effect of industry profit on management compensation is higher in competitive industries than in concentrated industries. The positive effect is greater in slow-growing industries than in fast-growing industries. Empirical tests incorporating the risk component method show the same results. These results are consistent with the argument that, in a growing market or in a concentrated market, the value of SGPE diminishes as the value of commitment to collusion diminishes. © 1999 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology