The purpose of this study is to examine the relationship between the controlling shareholders' ownership (OWNER) and variability of stock returns(SD(Rit)) of companies listed on the Korea Stock Exchange from January 2004 to December 2014 a total of 5,653 samples were analyzed.
In particular, we classify firms as total sample firms, chaebol firms and non-chaebol firms, firms with strong corporate governance, and firms with weak corporate governance. We then further analyze the relationship between the controlling shareholder's ownership (OWNER) and the variability of stock return(SD(Rit)) did.
The results of panel data regression analysis of this study are summarized as follows: First, in the sample firms, the relationship between the controlling sharehodlers' ownership (OWNER) and the variability of the stock return (SD(Rit)) is positive(+).
This result can be interpreted as supporting the manager's risk-taking incentive hypothesis that the controlling shareholders' ownership (OWNER) the call option so that the controlling shareholder passes the higher risk to the corporation in order to increase the ownership value of the controlling shareholder.
Second, in the analysis of the sample firms as chaebol and non-chaebol firms, the relationship between the controlling shareholders' ownership (OWNER) and the variability of the stock returns(SD(Rit)) is not statistically related. These results suggest that the controlling shareholder 's ownership (OWNER) does not affect the firm' s risk (SD(Rit)) in chaebol and non-chaebol firms.
Third, in the analysis of the sample firms classified as strong corporate governance and weak firms, the relationship between controlling shareholders' ownership (OWNER) and variability of stock returns(SD(Rit)) was not statistically related in the case of strong corporate governance. This implies that the controlling shareholders' ownership (OWNER) does not affect the risk of the firm.
On the other hand, in the case of weak corporate governance, the relationship between controlling shareholders' ownership (OWNER) and variability of stock returns(SD(Rit)) is significant negative(-). These results suggest that the controlling shareholder supports the manager 's aversion hypothesis that it transfers lower risk to the company as a result of sensitizing the potential risk of the investment company to bankruptcy.
Therefore, this study suggests that when the sample firms are analyzed, the variability of stock returns(SD(Rit)) increases as the firm's controlling shareholders' ownership (OWNER) increases, suggesting that the manager' s risk-taking incentive hypothesis is supported.
On the other hand, when the firms with weak corporate governance are analyzed, the variability of stock returns(SD(Rit)) is also lower when the controlling shareholders' ownership (OWNER) is higher. Therefore, we can find that the manager 's risk aversion hypothesis is supported.