A Study on the Effectiveness of Investment Strategy with Governance Rating Factors

Sohn, Kyoungwoo; Choi, Youngmin

Korean Journal of Financial Studies 2016;45(2):317-342.
Published online April 30, 2016.

Kyoungwoo Sohn, Youngmin Choi

기업지배구조 요인의 투자전략 유효성 연구

손경우, 최영민

Abstract

The purpose of this study is to investigate the effectiveness of investment strategy with governance ratings of Corporate Governance Service (CGS). Based on our empirical tests, the following implications are obtained as a result: Firstly, we verify that the factor portfolios of governance rating score and total score show insignificant alpha except ``shareholder protection`` factor. Secondly, we examine the risk-adjusted alpha of portfolio (deciles 1～10) based on governance rating scores, we find monotonic downward pattern only in ``shareholder protection`` factor. Thirdly, from sub-analysis of ``shareholder protection`` factor, we find that the high scored portfolio in ``ownership structure`` factor show the significant and negative performance. This result can be interpreted that the Korean investors consider a firm without the controlling shareholder as a high enough exposures to agency problems, and the result leads that the investors overreact and require excessive premium. In addition, there is an inconsistency of pricing reaction according to governance sub-indicators. Such findings support that the naive follower of SRI index or plain strategies using governance factor are required a considerable deliberation in Korean Market.

Key Words: 기업지배구조,대리인 비용,소유구조,주주권리보호,Agency Cost,Corporate Governance,GMM-SDF,Ownership Structure,Shareholder Protection