Convergence in the Ownership and Governance of East Asian Firms?

Abstract

Corporate governance policies over the past decade have required all firms to follow the same guidelines. As a result, we examine whether the ownership and governance choices of East Asian family firms have converged to those of non-family firms. We find that family firms continue to maintain higher board representation and lower board independence than most other firms. We also examine differences among family firms (founded versus acquired and first versus second generation). We find that acquired family firms are owned differently but governed the same as founded family firms and that second generation family firms have a higher control wedge, higher board representation and lower board independence than first generation family firms. The results show that ownership and governance choices continue to differ between firms depending on the identity and generation of the controlling owner. From an agency cost perspective, the firms requiring more emphasis on corporate governance are second-generation family firms and government-controlled firms.

For policymakers, our analysis indicates that voluntary corporate governance codes have not been successful in encouraging the convergence of ownership and governance practices across firms. Some policy suggestions for the future include setting mandatory lower bounds on board independence and mandatory upper limits on board representation (equal to ownership rights). This will help to minimize the variation across firms around the specified target. Our analysis also shows that it would be possible to customize recommendations across a small number of identifiable sub-groups of firms, e.g. family firms, individual-controlled firms, government-controlled firms and widely-held firms, rather than using one set of recommendations for all firms.

Keywords: East Asia, board of directors, corporate governance, family firms, ownership