Monday, Jan. 26, 2009 • Global Law Workshop

January 15, 2009Duke Law News

Bernard S. Black
University of Texas at Austin
School of Law
4:30 - 6:00 pm • Room 4042

Professor Black will present a paper entitled How Corporate Governance Affects Firm Value: Evidence on Channels from Korea, which he co-authored with Woochan Kim, Hasung Jang, and Kyung-Suh Park.

All are welcome. You can request a copy of the paper from

Abstract: If firm level corporate governance affects firm market value (the price of minority shares) or overall firm value, what are the channels through which it does so? Prior work in emerging markets provides evidence of an association between corporate governance and firm market value, more limited evidence of a causal relationship, but very little evidence on the channels through which governance may affect value, and whether the effect is only on share price, or on overall firm value. We first confirm the association between governance and value using panel data on Korean public companies over 1998-2004. Firms with higher scores on an overall Korean corporate governance index (KCGI) have higher Tobin's q; this result is driven by the board structure component of KCGI and, less strongly, by ownership parity and disclosure components. Shareholder rights and board procedure subindices are not significant. We then provide evidence on several possible channels. For firms with higher KCGI scores: (i) related party transactions are less adverse to firm value; (ii) firm profitability is more sensitive to shocks to industry profitability; (iii) capital expenditures are lower, but investment is more sensitive to profitability and growth opportunities; (iv) sales growth is lower; (v) profitability is more sensitive to growth opportunities; (vi) lagged board structure is associated with higher firm profitability; and (vii) dividends are higher, controlling for profits, and are more sensitive to profits. Board structure is associated with the first six channels; parity with the third, fourth, and sixth, and disclosure with the fifth. A 2SLS analysis (using 1999 legal rules which apply to large firms to instrument for board structure) offers evidence that the link between board structure and firm value, and between board structure and these channels, is likely to be causal. The first two channels are consistent with governance reducing wealth transfers to insiders; the remainder are consistent with governance affecting overall firm value.

Bio: Bernard S. Black is Hayden W. Head Regents Chair for Faculty Excellence and Professor of Law at University of Texas Law School, Professor of Finance at McCombs School of Business, University of Texas at Austin and managing director of the Legal Scholarship Network.

Professor Black received his B.A. from Princeton University, M.A. in physics from University of California at Berkeley and J.D. from Stanford Law School. After graduation, he clerked for Judge Patricia M. Wald on the United States Court of Appeals for the District of Columbia Circuit, practiced corporate and securities law at Skadden, Arps, Slate, Meagher & Flom in New York City, and served as Counsel to Commissioner Joseph Grundfest of the U.S. Securities and Exchange Commission. Before coming to Texas, he was Professor of Law at Stanford Law School (1998-2004) and Columbia Law School (1988-1998).

He has been an advisor on company law, securities law, and corporate governance in Armenia, Brazil, Indonesia, Korea, Mongolia, Russia, Ukraine, and Vietnam. He has published numerous articles in major law, finance, and economics journals, principally in the areas of corporate and securities law, international corporate governance, corporate acquisitions, and corporate finance. His recent articles and working papers are available at

His books include The Law and Finance of Corporate Acquisitions (2nd ed., with Ronald Gilson, 1995 and supplement 2003) and Guide to the Russian Law on Joint Stock Companies (with Reinier Kraakman and Anna Tarassova (1998).

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