This paper contributes to a new literature on the factors that affect firms’
corporate governance practices. We find that regulatory factors are highly important,
largely because Korean rules impose special governance requirements on large fi rms
(assets > 2 trillion won). Industry factors, firm size, and firm risk are also important.
Other firm-specifi c factorsonly modestly affect governance even when they are statistically
signifi cant. This suggests
that many Korean fi rms do not choose their governance to maximize share price. Among
firm specific factors, the most significant are size (larger firms are better governed)
and firm risk (riskier firms are better governed). Long-term averages of profitability
and equity finance need are significant, where short-term averages are not. This
is consistent with “sticky governance,”in which firms after their governance
slowly in response to economic factors.