The impact of family ownership on firm value and earning quality: Evidence from Korea

Korean listed firms exhibit some of the highest levels of family ownership in the world. This paper investigates how family ownership affects earnings quality and firm value of firms listed on the Korean Stock Exchange (KSE) in the post crisis period 2000 to 2005. Existing studies show that family ownership may either reduce or aggravate agency problems, suggesting that family ownership overlaps between Type I and Type II agency problems. These unique characteristics of family ownership may affect firm value and quality of earnings. We classify family ownership into three categories: family ownership, pure family ownership, and ownership-control disparity. We find family ownership and pure family ownership is positively associated with firm value and earnings quality. This result supports that family ownership mitigates agency problems, thereby improving firm value and earnings quality. We find there is a non-linear relation (reverse U-shape) between family ownership and firm value measured by Tobin's Q. We do not find that high ownership-control disparity reduces firm value and earnings quality, despite consistency with expected sign