1,720,987 research outputs found
Agency problems and performance of Korean companies during the Asian financial crisis: Chaebol vs. non-chaebol firms
No full textAgency problems can become more serious during an economy-wide financial crisis and they can have different roles depending on the corporate governance structure of a company. This paper examines whether agency problems explain the performance of Korean companies during the Asian financial crisis and whether agency problems explain the performance differently for chaebol vs. non-chaebol firms. Korean business groups, chaebols, are known to have weaker corporate governance structures than non-chaebol firms. The results show that the performance during the crisis is somewhat closely related to agency problems. In addition, the paper presents some evidences that the role of agency problems depends on corporate governance structures. © 2003 Elsevier Science B.V. All rights reserved
Do Firms Knowingly Repurchase Undervalued Shares?
No full textOne reason managers mention for repurchasing stock is a perception that their shares are undervalued. We reexamine the role of undervaluation in open market repurchase programs by incorporating concurrent insider trades. Using a comprehensive sample of repurchase programs, support for the undervaluation hypothesis is mixed. Prior to a program announcement, insiders increase their purchase activity. Moreover, repurchase firms where insiders are also buying shares show better long-run performance in comparison to cases where insiders are selling. However inconsistencies arise when attention is focused on value stocks. While the relative proportion of buying to selling activity is greater in value stocks, long-run performance does not materially differ between cases where managers are buying versus selling. To the extent that insiders reveal their optimism ｏｒ pessimism through their personal trading behavior, this evidence questions the degree to which managers knowingly repurchase shares because of undervaluation. Interestingly, analogous evidence is reported using equity offerings where the results also are not entirely consistent with managers knowingly issuing overvalued equity
How Do Options Add Value? Evidence from the Convertible Bond Market
No full textThis paper studies the value relevance of the options market by focusing on convertible bond pricing. Pricing convertible bonds requires essentially the same set of information necessary to price options. Using a regression discontinuity design based on minimum stock price requirements for option listings, we find that the availability of stock options helps issuers attract more convertible bond buyers and reduces convertible issuers' cost of financing. Our results highlight that the availability of individual stock options can add value to security issuers.</p
Business groups and tunneling: Evidence from private securities offeringsby Korean chaebols
No full textWe examine whether equity-linked private securities offerings are used as a mechanism for tunneling among firms that belong to a Korean chaebol. We find that chaebol issuers involved in intragroup deals set the offering prices to benefit their controlling shareholders. We also find that chaebol issuers (member acquirers) realize an 8.8% (5.8%) higher (lower) announcement return than do other types of issuers (acquirers) if they sell private securities at a premium to other member firms, and if the controlling shareholders receive positive net gains from equity ownership in issuers and acquirers. These results are consistent with tunneling within business groups
Risk Changes and External Financing Activities: Tests of the Dynamic Trade-off Theory of Capital Structure
No full textWe provide new insight into the relevance of the dynamic trade-off theory of capital structure by examining firms' external financing activities following risk changes. Consistent with the prediction of the dynamic trade-off theory but inconsistent with the pecking order theory, we find that firms issue equity following risk increases and debt after risk decreases, even when we narrowly focus on financially unconstrained firms. However, the results do not hold for firms with high market-to-book assets ratios, indicating that in this case, external financing activities are better captured by other factors than those explicitly considered in the trade-off theory, such as market timing. Our results are robust to a variety of risk measures including stock return volatility, default probability, implied asset volatility, and adjusted Ohlson (1980) scores.
Economic shock, owner-manager incentives, and corporate restructuring: Evidence from the financial crisis in Korea
No full textWe examine how owner-managers incentives and firm-specific measures of corporate governance affect restructuring decisions during an economy-wide shock. Using a large sample of Korean firms that had experienced a severe financial crisis during 1997-1998, we find that the likelihood of restructuring is negatively related to the divergence of cash flow rights and control rights of controlling shareholders, and that the announcements of restructuring by chaebol firms with such divergence are greeted more negatively by investors. However, firm-specific measures of corporate governance such as total debt, bank loans, and equity ownership by unaffiliated financial institutions mitigate these negative effects, thereby influencing firms to choose value-maximizing restructuring policies. Our results suggest that the controlling shareholders' incentives to expropriate other investors are high during an economic shock. Our results also highlight the importance of corporate governance in mitigating such expropriation incentives, and provide important implications for the role of corporate governance during an economic shock, such as the 2007-2008 global financial crisis. (C) 2009 Elsevier B.V. All rights reserved
Do managers time the market? Evidence from open-market share repurchases
No full textA contentious debate exists over whether executives possess market timing skills when announcing certain corporate transactions. Pseudo-market timing, however, has recently emerged as an important alternative hypothesis as to why the appearance of timing might be evident when, in fact, none exists. We reconsider this debate in the context of share repurchases. Consistent with prior studies, we also report evidence of abnormal stock performance following buyback announcements. Pseudo-market timing, however, does not appear to be a viable explanation. Our results are more consistent with the notion that managers possess timing ability, at least in the context of share repurchases
Two essays in finance
No full text"In the first essay, ""Do Firms Knowingly Sell Overvalued Equity?"", I develop a simple equilibrium model which shows that insider trading around seasoned equity offerings (SEO) depends on both the quality of issuing firms and insiders' exogenous consumption shocks, neither of which are known by outside investors in the model. The empirical evidence indicates that insider trading is not reliably related to the future long-term stock returns of issuing firms even though it is reliably related to their announcement period abnormal returns. Issuing firms underperform their benchmarks regardless of the prior insider trading pattern. This suggests that insiders who have purchased shares before issuing do not realize that the market has overcapitalized prior good news, and are not knowingly selling overvalued equity.""The second essay, ""Deposit Insurance with Changing Volatility: An Application of Exotic Options"", develops a model to incorporate the bank managers' incentives to change the bank's volatility into the pricing of deposit insurance. It is assumed that the volatility of the bank's assets changes or can be changed when the assets first hit a certain level. The results show that the shareholders' equity and the deposit insurance premium can be represented as combinations of generalized versions of particular barrier options known as down-and-out and down-and-in options. Numerical examples are used to illustrate the properties of the model."Made available in DSpace on 2011-05-07T12:27:58Z (GMT). No. of bitstreams: 2
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