Effect of the Absence of Unethical Controlling Shareholders on Firm Value and the Moderating Role of Corporate Governance: Evidence from South Korea

Abstract

Prior research on unethical controlling shareholder is limited. This study examines the effect of the evanishment of unethical controlling shareholders’ risk on firm value and how corporate governance moderates this effect from a principal–principal agency perspective. This research proposes a contingent model of corporate governance as a mechanism to provide professional managers with managerial autonomy. This study identifies 43 cases of controlling shareholders of Korean conglomerates being absent due to their imprisonment from 2006 to 2015. The regression analysis results indicate that the evanishment of controlling shareholders’ risks does not significantly influence the affiliated firms’ value. This study supports the positive effect of corporate governance on firm value. Although the statistical significance is low, it observes a tendency for corporate governance to amplify the relationship between the dissolution of unethical controlling shareholders’ risks and firm value. This study contributes to the literature by being one of the first to explore unethical controlling shareholders’ risks based on corporate governance theory.