Impact of Governance Reform on Stock Repurchase in Korean Csompanies

Since the Asian currency crisis in 1997, there have been many governance reforms in Korean companies. The introduction of outside director is one of the major reform programs. Stock repurchase, which is the buyback of the shares by the management, has recently increased and means to pay out excess cash it retains either as a substitute for or as a supplement to dividends. Stock repurchase is one of shareholder-friendly management. In this study, we explore how outside directors influence stock repurchase in Korean context and the diverse owner identity moderate this relationship. We include the moderating effect of controlling shareholders, institution investors and foreign investor. We hypothesized the positive impact of outside directors on stock repurchase amount and negative moderating effect of controlling shareholders and positive moderating effect of institution investor and foreign investors on the relationship between outside directors and stock repurchase. It is very meaningful to test if American governance mechanism functions properly in Korea. From the empirical test, we obtained the significant relationship as expected.