Jin-young Jung, Ph.D., visiting scholar and researcher for the Emerging Markets Institute at the Samuel Curtis Johnson Graduate School of Management at Cornell University, was published in the April 2012 online edition of the Asia-Pacific Journal of Financial Studies.
Jin-young Jung, Ph.D., visiting scholar and researcher for the Emerging Markets Institute at the Samuel Curtis Johnson Graduate School of Management at Cornell University, was published in the April 2012 online edition of the Asia-Pacific Journal of Financial Studies. Her paper, written jointly with Sung Wook Joh of the College of Business Administration at Seoul National University, is titled “The Effects of Outside Board on Firm Value in the Emerging Market from the Perspective of Information Transaction Costs.”
The research uses data from all publicly listed firms in Korea, from 1999-2006, to analyze the value of a firm’s Board of Directors, based on whether or not a board is truly independent from the firm. Independent directors are outside directors who have never had business and professional ties with the firm. Once a board is given a value based on the percentage of independent directors on its board, the authors determine the information transaction costs to put a value to the board’s effectiveness.
Current literature on the topic uses traditional measures, such as firm size, firm age, number of analyst reports, governance scores, credit ratings, and institutional ownership, to test the information transaction costs between a firm and its Board of Directors. Jung and Joh go one step further, by including non-traditional variables, such as processing costs and inventory costs that are used in the current microstructure theory literature. The authors conclude that boards with more independent directors have a higher corporate value and are more effective, if the firm has lower information transaction costs. The results suggest that the monitoring role of independent directors is limited, when transferring firm-specific information is costly. In conclusion, the research suggests that there is not a one-size-fits-all board structure recommendation.
“This research employs non-traditional variables to measure transaction costs, and demonstrates true ‘out of the box’ thinking,” said Richard Coyle, executive director of the Emerging Markets Institute “We plan to foster additional academic research in emerging markets.”
About the Emerging Markets Institute:
Established in 2010, the Emerging Markets Institute was founded at Cornell University’s Samuel Curtis Johnson Graduate School of Management to promote the research and study of emerging economies. The Institute provides a private forum for lively exchange among corporate leaders from emerging and developed markets and leading researchers. We are building the most highly regarded academic program for the study of emerging markets—with the breadth, depth, and quality of education needed to effectively prepare business leaders for success.