A Research on Corporate Governance and Risk Taking Behavior

Close interpretation of agency theory (Jensen, Meckling, 1976) may lead to a testable hypothesis that difference of corporate governance can lead to difference of corporate risk taking behavior. This is a new approach compared to previous researches which have been focused on analyzing corporate performance under different governance structures. Using a set of KRX listed companies from 2007 to 2018, we examine whether different governance could lead to different corporate risk taking behavior. We are especially interested in family-run or chaebol affiliated firms. We tested on some relevant corporate governance variables: family-run, chaebol affiliation, and ownership concentration. We found that family-run firms and the firms with highly concentrated ownership run more safely with lower profit variability, lower default risk, and lower leverage. Chaebol affiliated firms show similar characteristics in default risk and leverage, however, higher profit variability. The results are concordant with an interpretation of agency theory related to governance structure - especially equity distributions.