ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Corporate Governance and the Effects of Long－term Orientation on Market Responses

  • Kim Kyung Tae University of Seoul
  • Hee Chun Roh Soongsil University

Asian Tax Journal Vol. 21 No. 4 (2020), pp. 151-182

Abstract

The purpose of this study is to suggest that uncertainties inherent in long－term orientation(LTO) may be assessed differently in the capital market depending on corporate governance. In particular, we would like to see how the nature of management protection that may exist in the ownership governance structure can affect long－term orientation. LTO refers to the tendency of an entity to pursue strategically in order to continue to grow. A long－term oriented entity cannot be determined to be highly valued in the capital market. Since there may be differences in the extent to which long－term orientation is reflected in corporate value due to the uncertainty that exists in LTOs, it is necessary to empirically identify how differences arise depending on the degree of corporate governance in the process of long－term orientation being evaluated in the capital market. In the preceding study, corporate governance is a measure used in terms of agency costs. In this study, a hypothesis is established by considering the nature of dual class stock in which corporate governance is utilized to protect management rights. Differential voting rights holders have priority rights in their voting rights, so management rights can be considered protected. The results of this study are summarized as follows. As a result of the market response to long－term orientation, the entity's business value for the facility investment perspective(LTO_A) and research and development perspective(LTO_R) was assessed higher than that for the entities in the large business group. This can be interpreted as a result of the greater protection of managerial control of large business groups in respect of uncertainties in facility investment and research and development. Next, a separate empirical analysis of cases in which the nature of the agency’s cost of ownership is severe showed that there is no difference in the effectiveness of the market response to LTO, even if the ownership governance is large, compared to the other cases. These results can be interpreted that the nature of management protection plays a greater role than the problem of agent costs that may exist in the ownership governance structure. It also demonstrated that the market response to LTO is assessed in the capital market from a long－term perspective rather than a short－term assessment, while also providing a supplement to the uncertainty that management rights protection due to ownership governance may exist in long－term orientation. This study has the following additional contributions relative to the preceding study：First, it can be confirmed that the long－term orientation required for an entity to continue to grow is assessed differently in the capital market by its ownership governance. Second, unlike prior research, it empirically suggests that ownership governance is understood in the capital market as a management protection perspective. Third, sensitivity analysis shows that market responses to long－term orientation can be reflected in the long－term capital market.

Keywords

  • Long－term orientation
  • Market responses
  • Corporate governance
  • Wedge
  • dual class stock

Related Articles

ATJ
E-SubmissionSitemapContact Us RSS

Asian Tax Journal

Address : 3F, KICPA Bldg., 12 Chungjeongro 7-gil, Seodaemun-gu, Seoul 03736, Republic of Korea

Editor-in-Chief : Prof. Wanyong Kim Editorial Office : Dept. of Finance, Accounting & Taxation, Hanyang Cyber University, 220 Wangsimni-ro, Seongdong-gu, Seoul, Republic of Korea Tel : +82-2-2290-0418 / +82-10-8664-1117 E-mail : taxresearch2@hanmail.net