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Korean Academic Society of Business Administration
[ Article ]
korean management review - Vol. 50, No. 6, pp.1471-1493
ISSN: 1226-1874 (Print)
Print publication date 31 Dec 2021
Received 19 Apr 2021 Revised 19 Jul 2021 Accepted 23 Jul 2021
DOI: https://doi.org/10.17287/kmr.2021.50.6.1471

이사의 손해배상책임 감경규정 도입의 효과

Jinbae Kim ; Jeong-taek Kim
(First Author) Korea University Business School jinbae@korea.ac.kr
(Corresponding Author) Korea University Business School ssummit@naver.com
The Effect of Adoption of the Liability Limitation Provisions for Directors


Copyright 2011 THE KOREAN ACADEMIC SOCIETY OF BUSINESS ADMINISTRATION
This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0, which permits unrestricted, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This paper investigates the effect of adoption of the Liability Limitation Provisions(LLP) on managerial behavior and future firm performance, and studies what role the corporate governance plays in this context. Our findings are summarized as follows. First, we document that LLP adopters spend more R&D expenditures, have higher idiosyncratic risk, and have greater volatility in operating performance than non-LLP adopters. Second, there is no significant difference in firm performance between LLP adopters and non-LLP adopters. This implies although LLP adoption lets managers take more risk, it does not immediately lead to better performance due to certain offsetting factors. Third, however, when an analysis is conducted on subsamples divided based on the effectiveness of corporate governance, we find that LLP adopters exhibit better operating performance than non-LLP adopters in a subsample of firms with good governance. This suggests the better the governance structure, the more effectively the negative effects of LLP are suppressed and the better the positive effects of LLP are manifested. Overall, this study shows that LLP adoption can promote bold managerial behavior, and lead to better firm performance, especially in firms with good governance. The findings of this study provide empirical support to justify the LLP in Korea.

Keywords:

Liability limitation provisions, Investment, Firm risk, Corporate governance

Acknowledgments

This research is supported by Korea University Business School research fund (in 2021).

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∙ The author Jinbae Kim is an accounting professor in Korea University Business School. He graduated from Seoul National University, earned an MBA at the University of Chicago and a Ph.D at Carnegie Mellon University. After he had been teaching at Boston University, he joined Korea University in 2001. His research interests include performance and compensation, relative performance evaluation, cost behavior, earnings forecast and corporate governance.

∙ The author Jeong-taek Kim is a doctoral student at Korea University Business School. He received a bachelor's degree from Seoul National University and his master's degree from the same graduate school. His research interests include corporate governance, auditing, and disclosure.