The moderating effect of international trade on outside director system in Korean firms

Abstract

PurposeThe purpose of this paper is to investigate the moderating effect of international trade on outside director system in Korean firms. The authors expected that Korean firms highly depending on international trade would mitigate the resource provision function of outside director system in order to reduce information asymmetry among global business partners. In addition, the authors tried to find out the functions of outside director system: the control function based on agency theory and resource provision function based on resource dependence theory.Design/methodology/approachThe authors tested the hypotheses by Poisson regression with 2011 and 2002 Korean-listed manufacturing firms. The dependent variable is the number of excessively appointed outside directors and independent variable is CEO type: family CEO or professional CEO. The moderating variable is the dependency on international trade measured by export proportion out of total sales.FindingsThe authors found that not control but resource provision function was a main role of outside director system in Korean firms. The authors also found negative moderating effect of dependency on international trade, which means that firms highly depending on global market tended to consider outside director system as control function, namely “global standard.”Originality/valueThis paper is the leading study that tries to analyze empirically the relationship between international trade and the function of governance mechanism; outside director system in Korean firms. It also confirms that Korean firms adopted outside director system on the basis of the resource dependence theory.