Owner-Managers and the Implied Cost of Equity Capital: Evidence from Chaebol Firms

This paper examines whether and how different CEO types affect the implied cost of equity capital in Korean chaebol firms. Using 946 firm-year observations of KOSPI-listed firms for the period 2005-2015, a significant positive correlation was observed between chaebol firms with owner-managers and the implied cost of equity capital. This implies that investors regard the agency problems of Korean chaebol firms that have owner-managers as a risk premium factor that requires a higher cost of capital. Moreover, the positive association between chaebol firms that have owner-managers and the implied cost of equity capital was more pronounced in firms with a low proportion of outside directors and high uncertainty period. This paper has potential implications for related literature in that owner-managers, internal governance, and education level may significantly influence the cost of equity capital in Korean chaebol firms.