Since the Korean economic crisis of 1997, corporate governance has become a subject of active academic and policy debate. Many have pointed out the deficiencies in the “Korean way” of corporate governance that led to weakened fundamentals and the poor economic performance of Korean firms. However, direct evidence on the effects of different governance systems on corporate performance and competitiveness is still sparse. This chapter provides empirical evidence on the link between corporate governance and firm performance in the 1990s.

A number of existing studies focus on the relationship between corporate governance and firm performance. Most studies are based on macro-level, cross-country comparisons that are rarely convincing because there is no single model of good corporate governance that holds across all countries. The effectiveness of different corporate governance systems is influenced by history, culture and differences in legal and regulatory frameworks, as well as the structure of product and factor markets (Maher and Anderson 1999). Hence, it does not make much sense to debate whether the “Anglo-Saxon model” is superior to the “Japanese model” or the “German model”. Moreover, given that there are significant variations in corporate governance systems within each country, we cannot even be sure whether such countrywide comparisons are valid.

This study therefore joins the small but growing literature that focuses on firm-level data within countries. The search for good practice should be based on identification of what works within a given country.