Corporate Governance, Chaebol Affiliated and Implied Cost of Equity Capital: Evidence from Korea

This study investigates the relationship between corporate governance and the implied cost of equity (ICOE) capital using Korean novel corporate governance data from. This paper uses unique and novel data from the Korean corporate governance services (hereafter, KCGS) and year in 2005 to 2013 Korean listed 1,320 firm-year observations. Prior papers suggest that good corporate governance (CG) leads to lower ICOE (Byun et al., 2008; Zhu, 2014). Therefore, this paper divides the sample into two groups: the chaebol firms and the non-chaebol firms. It notes that in the chaebol firms group, good corporate governance is not lowering the ICOE; meanwhile, in the non-chaebol firms group, good corporate governance, especially shareholder protection rights is negatively associated with the ICOE. So from this study, agency problem between controlling shareholder and minority shareholder might be reduced by strong shareholder protection rights then it needs to enhance more strong shareholder rights to reduce agency cost especially chaebol firms.