The Effect of Ownership on Pay, Performance, and Internationalization: Evidence from Korean Small and Medium Enterprises

This paper deals with the role of ownership on executive pay, firm performance, and business internationalization. In contrast with the literature that presumes the strict separation of ownership and management, we pay special attention to the managerial ownership that reflects the alignment of ownership and management. Discerning the managerial ownership from the controlling shareholder’s possession, we can examine the pure management effect apart from the proprietorship, or vice versa. With disclosed information of non-financial small and medium-sized enterprises in South Korea from 2014 to 2018, we mainly analyze the effect of ownership intensity and executive pay on the firm performance and business internationalization. We find the following results: (1) Executive compensation is directly associated with the performance and the internationalization. (2) Managerial ownership positively affects the executive remuneration, which is, in turn, positively associated with the performance and the internationalization. (3) Controlling shareholder’s ownership is not associated with the performance nor the internationalization. In sum, we conclude that the alignment of ownership and management is crucial to the firm performance and the business internationalization directly or indirectly.