Stocks perform better and pay out more dividends in Korean companies with the owner as the registered head of the board than those without. The finding has ramifications for Korean large companies as they are mostly under hereditary rule by the founding family members. Family members of the country’s largest conglomerate Samsung are mostly unregistered. Registered board members are exposed to greater legal accountability and stricter disclosure rules including reporting of annual paycheck.

According to a study on stocks of 40 largest business conglomerates by Daishin Economic Research Institute, the cumulative abnormal return, or the difference between the actual return of a stock and the expected return often triggered by corporate events, mergers, and dividend news, was 32.3 percent for companies that had the individual major shareholder as a registered board member. The difference between the individual stock price and market average was smaller at 25.4 percent for companies run by unregistered head.

The companies with corporate owners or owner family members registered as board members on average had a cash dividend payout ratio of 41.4 percent, compared with 26.1 percent of those without.

When major shareholders are directly involved in corporate management as board directors, they take more responsibility in corporate governance thus resulting in better business performance and higher dividend payout, the securities report said. Major shareholders, or owner family members, are more generous in dividends as they too would become richer.

According to the study by Daishin Economic Research Institute, Kolon Corp. marked the highest dividend payout among the companies with major shareholders registered as board directors last year with a ratio of 250 percent followed by GS Holdings Corp. with 149 percent. Halla Holdings Corp. and LG Corp. had payout ratios of 125.3 percent and 66.1 percent, respectively.

Taekwang Industrial Co. and Kyobo Securities Co. whose major shareholders are not registered as board directors delivered payout ratios in the bottom range of 4.8 percent and 6.8 percent, respectively.

Only 7.5 percent of the companies of the nation’s top 40 groups have major shareholders as their registered board directors, which raises the danger of poor responsibility and opaque management among Korean cheabols,”said Ahn Sang-hee, a senior analyst at Daishin Economic Research Institute. “If a major shareholder does not have any past incident of damaging corporate value, a major shareholder should participate in the management as board directors to elevate the shareholder value.”

By Kim Je-lim

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