The value relevance of accounting information, ownership structure, and business group affiliation: from Korean business group

Kee-Hong Bae
Korea University

Seok Woo Jeong
Korea University

Abstract: We investigate the quality of accounting information provided by firms belonging to Korean business groups (chaebols). We find that the value-relevance of accounting information is significantly smaller for firms affiliated with business groups. We also find that cross-equity ownership (a proxy for the agency problem between controlling and minority shareholders) negatively affects value-relevance, while foreign equity ownership (a proxy for the monitoring effect) positively affects value-relevance. This evidence is consistent with the view that the poor quality of accounting information provided by chaebol-affiliated firms is due to the inherently poor governance structure of chaebols.

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