Utilizing a large sample of South Korean firms, this paper explores the impact of corporate governance in an emerging market country dominated by a few large business groups. Firms affiliated with the top five groups (chaebol) exhibit significantly lower performance and significantly higher sales growth relative to other firms. Furthermore, top executive turnover is unrelated to performance for top chaebol firms, indicating a breakdown of internal corporate governance for the largest business groups. Internal corporate governance appears much more effective for firms unrelated to the top chaebol as managers at poorly performing firms are significantly more likely to lose their job. These results imply that the lack of properly functioning internal corporate governance among the top chaebol, which dominate the Korean economy, may have increased the severity of the recent financial crisis.

Abstract Reviews the book "Expert Systems in Finance and Accounting," by Robert J. Thierauf.

Abstract Reviews the book "Public Company Auditor Changes and Big Eight Firms: Disagreements and Other Issues," by Donald K. McConnell.

We investigate external and internal corporate governance activity observed at Japanese banks over 1985–1996. External governance appears to be inactive, and even after the onset of the banking crisis of the 1990s there are few mergers, failures, and other changes in ownership and control. Prior to the banking crisis we do not find a relation between bank performance and executive turnover. In contrast, non-routine turnover of bank presidents is inversely related to both stock returns and profitability in the 1990s. Consequently, internal governance activity is observable following the onset of the Japanese banking crisis, a period otherwise characterized by inactive external governance and regulatory forbearance.

After a large bank merger, the compensation of the surviving bank's CEO often increases materially. Theories of executive compensation based on managerial productivity and optimal incentives suggest that changes in CEO compensation are related to the potential gains from merger. Alternatively, compensation gains might result from an increase in bank size regardless of whether the merger creates value. We examine mergers among billion-dollar banks in the 1990s and find results consistent with managerial productivity. Specifically, we show empirically that changes in CEO compensation after mergers are positively related to anticipated gains from merger measured at the announcement date. Other changes in the structure of compensation are also consistent with hypotheses based on managerial productivity and incentive restructuring.