The transformation of ownership structure and changes in principal-principal conflicts: evidence from corporate governance reforms in South Korea

Abstract

Emerging economies are characterised by weak governance mechanisms, which can lead to principal-principal (PP) conflicts. The nature of PP conflicts may differ because governance mechanisms are transformed by corporate governance reforms. This study investigates how market reforms change the nature of PP conflicts and how such changes influence a firm's technological diversification strategy. Using 4952 firm/year observations for Korean manufacturing firms from 1993-2004, we find that the ownership concentration level decreases over time. Moreover, we find that as the difference between inside ownership and outside ownership increases, technological diversification accelerates prior to market reforms but diminishes after market reforms.