Remains on the board: outside directors’ behaviour and their survival chance in Korean firms

ABSTRACT

Korean firms, often represented by a business group or chaebol, have adopted and increased outside directors owing to the government’s initiative for corporate governance reform. However, their monitoring role has been criticized as rubber-stamping. This study extends the literature, which explains outside directors’ ineffectiveness in terms of their focus on advising roles over monitoring ones, by pitting these directors’ behaviours against their roles. It argues that their behavioural characteristics, i.e. proactive versus conformist, affect their chance of survival on the board and subsequently influence firm performance. Analysing both survey and accounting data on 157 outside directors in Korean listed firms, this study finds that outside directors have a lower survival chance when they proactively perform their roles regardless of whether this involves monitoring or advising. However, when they survive, their proactive behaviour increases Tobin’s q. This study further investigates how to improve the lower survival chance for proactive outside directors, and sheds light on the moderating roles of power such as foreign ownership (for firms with higher growth opportunities) and outside directors’ valuable knowledge and experience such as elite MBA degrees (for firms with lower growth opportunity). This study discusses the theoretical and practical implications for outside directors’ behaviour and firm performance as a result of corporate governance reform in Korean firms.

KEYWORDS:

• Advising
• agency theory
• behaviour
• monitoring
• outside directors
• role

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by the Hankuk University of Foreign Studies Research Fund of 2021.

Notes on contributors

Taeyoung Yoo

Taeyoung Yoo is Professor at the College of Business Administration, Hankuk University of Foreign Studies in Seoul, South Korea. He holds a PhD in Management from Birkbeck College, University of London. His current research interests draw on organizational and institutional changes in light of identity roles and socio-economic arrangements. His research has appeared in journals such as Asian Business & Management, British Journal of Sociology, Corporate Governance, Organization Studies, and Target.

Yunsung Koh

Yunsung Koh is Professor at the College of Business Administration, Hankuk University of Foreign Studies, Seoul, Korea. He holds a PhD from the School of Business, Yonsei University. His research topics include corporate governance, R&D investment, dividends and tax avoidance. His research has appeared in journals such as Asian Business & Management, Asian Review of Accounting, and Asia Pacific Business Review.