A Study on the Effect of Governance Adequacy on the Corporate Performance

The paper analyzes the effects of governance adequacy on the corporate performance among Korean manufacturing firms. Most existing governance literature have adopted agency theory and investigated the control role of governance structure on the basis of the stockholder perspective, testing the hypothesis that the better the governance structure, the lesser the agency cost and the greater the stockholders’ wealth. In contrast to this hypothesis based on the stockholder perspective, this paper sees governance structure through the lens of stakeholders surrounding a firm's activities and argues that a firm's ultimate goal must be the maximization of the stakeholder value rather than the simple maximization of stockholders’ wealth. In this paper, we focus on the governance adequacy, examining the relationship between governance structure's change and corporate performance. Using the multiple regression analysis, we find that the relationship between governance adequacy and corporate performance is statistically significant. In addition, when dividing the corporate governance Index into stockholders’ wealth, board of directors, disclosure, audit committee, and dividend policy are significantly related to the corporate performance.