The Korean Economic Forum
Towards Good Corporate Governance: The Role of Market Incentives and Government Policy
Jihong Lee (Seoul National University)Year 2021Vol. 13No. 4
This paper is an attempt to provide a perspective on the economics of corporate governance and draw lessons for the current Korean economy. From the classic agency theory framework, we identify the credit rationing problem due to asymmetric information and discuss various market responses, including reputation effects, signaling, and monitoring. The role of competition and family ownership is emphasized in promoting implicit market incentives to achieve good corporate governance. While the importance of explicit legal and regulatory provisions is recognized, this paper highlights the potential danger of too much external oversight, especially for innovation. As the Korean economy matures,it must strive to strike the right balance between implicit market incentives and explicit government policy in guiding corporate activities.