The uncertainty surrounding the continuing availability of LIBOR after 2022 requires financial authorities and financial institutions in major countries to be thoroughly prepared. In this regard, financial authorities in major countries such as the U.S., the U.K., and Japan have recently completed the development of a new risk-free rate (RFR) to replace the existing IBOR and have been listing the RFR derivatives. The working group of Korea, which has been relatively late in developing a RFR, has also selected the overnight repo rate of government bonds and monetary stabilization bonds as the RFR in March 2021 after a series of discussions and votes, and announced that the development of detailed calculation method will be finalized in the third quarter of 2021. The repo market’s sufficient liquidity and use in derivatives markets were the main reasons for this selection. However, for the newly selected RFR to be settled in the market, a sufficient liquidity is required for related financial instruments or contracts, including RFR futures. Based on this circumstance, this study attempts to present policy implications for listing RFR futures in Korea Exchange by grasping the current status and structure of RFR futures listed in major countries. More specifically, we propose a plan to vitalize the domestic RFR futures market by presenting examples of major countries in which RFR futures are actively traded. In particular, the U.S.‘s Secured Overnight Financing Rate (SOFR) futures and the U.K.’s Sterling Overnight Index Average (SONIA) futures have been cross-listed on CME in the U.S. and ICE in Europe, so that existing Eurodollar futures and Fed rate futures could be replaced by these products. These countries’s experiences can be helpful for us to list a similar RFR product. Of course, it is unclear whether the RFR futures for Korean Won, which is not used as an international currency, can be settled down in a short period of time. The major countries already had derivatives market for short-term interest rate such as IBOR before listing RFR futures. In addition, they have sufficient demand for hedging short-term interest rate risk. Considering this domestic situation in which short-term interest rate futures are absent after the delisting of CD rate futures, the vitalizations of domestic RFR futures is difficult unless there is sufficient and institutional supports. The governments, government-related agencies and exchanges of major countries also have helped and supported RFR futures in order to improve their reliability and liquidity when they were first listed in exchanges. In the paper, we suggest the following methods to list and activate the RFR futures transaction. First, we propose diversification and centralization of RFR products that can satisfy the needs of market participants. For example, we can consider listing the Monetary Policy Board (MPB) RFR futures or spread trades between RFR futures and mid-term government bond futures. The introduction of spread trading with 3-year Treasury bond futures, which currently has sufficient liquidity, can induce existing market participants into the RFR futures market. In addition, it is necessary to design an appropriate incentive system for market makers by referring to overseas markets and past domestic cases with successful results.

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Asian markets provide ideal experimental sample for IPO research. Market development and regulatory changes give academic researchers the chance to gain detail insights on IPO topics. The main objective of this paper is to survey the literature on Asian IPOs. We use Web of Science as a data source to collect related literature. We survey papers using Asian IPO samples to study classical IPO topics and discuss special IPO topics in Asian IPO markets. Finally, we provide suggestions for future research on this subject.

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This study investigates whether institutional investors with large ownership (institutional blockholders) have informational advantages over other investors. The sample of this study is constructed from institutional investors’ mandatory filings on block shareholding of greater than 5% of a firm’s shares. Institutional blockholders are classified into active institutions if they express an intention to engage in a firm’s management as their purpose of investment and into passive institutions otherwise. To verify the information content of block ownership, this study investigates the short- and long-term market reaction to announcements of institutional investors’ block ownership. Main findings are summarized as follows. First, significant cumulative abnormal returns (CARs) are observed around the announcements. The CARs are much higher for active institutions than passive institutions. Second, the stocks owned by passive asset management companies significantly outperform both the market and the benchmark portfolio in the long-term. In contrast, the stocks owned by active private investment companies significantly underperform the benchmark portfolio. Overall, the results of this study suggest that passive asset management companies have superior skills in selecting undervalued stocks and they use long-lived information when they make large investment. In contrast, the inconsistent results on short- and long-term performance of stocks owned by active private investment companies imply that private investment companies’ activism are not effective enough to meet the initial expectations of the market.

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In this study, I examine the effect of patent applications on the cost of debt. Using a sample of Korean listed firms, I show that debtholders charge a significantly lower cost of debt to a firm with higher patent counts or greater patent productivity. This finding remains robust while considering the differences of firms with patents versus without patents, controlling for unobservable firm-specific factors by employing a firm-fixed effect model, and using a dynamic panel data model to mitigate an endogeneity concern that debt financing affects patenting activity. I further explore three possible channels through which patent applications affect the cost of debt. First, patents mitigate the degree of information asymmetry between firms and potential debtholders. Second, they provide expectations for increased future cash flows. Third, patents enable improved redeployability of assets. This study sheds lights on the real effects of patent applications on firms’ costs of debt.

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IPO underpricing is a subject of great interest for researchers. Previous studies have focused on the underpricing of private venture capital-backed IPOs, but mainstream academic researchers have left underpricing in government-backed IPOs largely uninvestigated. In this study, we fill this gap by analyzing the behavior of IPO underpricing for government-backed IPOs in Korea. For the purpose of this study, we examine 468 IPO cases on the KOSDAQ market during the period between 2009 and 2019. Empirical evidence shows that a unique structure of government sponsorship effectively reduces the level of underpricing in the IPO market. In particular, the dual sponsorship of government hybrid funding and private venture capital contributes most significantly to reducing the underpricing in the IPO market.

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This study examines how block share acquisitions of foreign investors affect stock returns of domestic target firms in Korea, focusing on the information asymmetry between target firms and foreign acquirers and the shareholder right protection in foreign acquirers’ home countries. There are at least two important reasons that using Korean data of block share acquisitions by foreign investors benefits the literature. First, Korean firms are well known to have poor governance systems and it is thus questionable whether foreign investors can improve firm value by monitoring as an outside blockholder when the investor protection is relatively low and whether geographic and cultural proximity of foreign investors can reduce information asymmetry with relatively low firm transparency in Korea. Second, investors are legally required to disclose their block holding intentions in Korea, which helps identify the effects of monitoring by blockholders on firms’ stock returns. Using 164 block share acquisitions in which foreign investors acquire at least 5% but less than 50% of a target firm’s stock shares from 1996 to 2016 as a sample, we find that stock returns of targets significantly increase when these block acquisitions are announced. To measure the information asymmetry foreign investors face in Korea, we use both geographic and cultural distances between foreign investors’ home countries and Korea and show that the positive stock market reactions to block acquisitions by foreign investors are more pronounced when the foreign block acquirers are geographically or culturally proximate to the host country. Moreover, we show that the value-increasing effects of geographic and cultural proximity of foreign investors on target stock returns are more evident when the foreign acquirers disclose their intentions to intervene in the management of target firms, suggesting that anticipated monitoring by foreign blockholders is an important determinant of the observed market reactions to their block share acquisitions. We also investigate how the extent of shareholder right protection in the home country of foreign acquirers influences the announcement returns of block acquisitions, using as a measure the difference in the shareholder rights scores between foreign acquirers’ home countries and Korea. We find positive stock price reactions to block acquisitions by foreign investors from countries with strong shareholder rights when they announce their monitoring incentives by stock market disclosures. In addition, we investigate whether the above findings vary according to the firm-specific information asymmetry measures such as a target firm’s size, age, tangibility, and R&D intensity, whether a target is listed in the KOSDAQ market, and whether it has credit ratings and the firm-specific governance measures such as its free cash flow and board size. We show that the value-enhancing effects of block acquisitions by foreign acquirers from geographically and culturally proximate countries and countries with strong shareholder rights are particularly evident when the firms targeted by foreign acquirers are likely to have higher information asymmetry and poorer governance systems according to the above-listed measures. Our results suggest that the stock market favorably responds to block share acquisitions by foreign investors anticipating their effective roles of monitoring target firms and firm value improvement facilitated by the active monitoring. Our results also indicate that these value increases by expected monitoring by foreign acquirers are more evident when the concerns on the information asymmetry between investors and targets are lower, when foreign acquirers are likely to have higher standards for the rights of shareholders, and when active monitoring is more likely to improve corporate governance and firm value. Our study contributes to the related literature in the following ways. First, our research confirms that considering heterogeneity among foreign investors is important in examining the impact of foreign investors on firms in the host country. We show that the heterogeneity in information accessibility of foreign investors due to their geographic and cultural proximities and in the shareholder rights protection in their home country matters in market valuation of their monitoring, in addition to the heterogeneity in shareholder activism in their home country (Kim, Sung, and Wei, 2017). Second, we supplement prior studies that investigate how information asymmetry between the host country and the home country of foreign investors and shareholder rights in their home country affect their governance activities and firm value (Kang and Kim, 2010), by exploiting the system of block holding disclosures in Korea and firm-specific measures of information asymmetry and corporate governance. Specifically, our findings suggest that the stock value increase in block acquisitions by foreign investors is attributable to the monitoring intentions of foreign investors with effective information accessibility and strong governance incentives, especially in firms with higher information asymmetry and poorer governance.

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The new coronavirus(COVID-19) has shocked economies around the world, and the stock market is also facing unprecedented conditions due to the effects of COVID-19. The impact of COVID-19 on the global economy is clearly different from typical cyclical fluctuations in the traditional economic development process and economic losses from the COVID-19 pandemic will also surpass the extent of endogenous and extreme events that have occurred in the past. Assessing and understanding the economic impact of COVID-19 has become an important issue. China is the first country to respond to COVID-19, and has made great efforts to boost shrinking production and consumption. However, since the level of the virus affects different industries, it is necessary to analyze the movement of the stock market at the industrial level. The Chinese stock market was a closed market where foreigners were not allowed to invest, but it has grown rapidly as an investment destination that investors around the world pay attention to following the government's stance of opening and reforming the capital market. The leading stock indexes, the Shanghai Composite Index and the Shenzhen Component Index, represent the entire flow of the Chinese stock market, with trading centered on large-cap stocks centered on traditional industries in the Shanghai market and new industry-oriented stocks such as IT and bio in the Shenzhen market. This paper tries to estimate the dynamic linear latent factor model (DLLFM) with jump in order to find jump risk, heteroscedasticity and time varying correlations in Shenzhen Stock Markets. In addition, the impact of disaster risk on volatility by industry was also analyzed by including the occurrence and diffusion of COVID-19 in the sample period. The motivation for the study began with the view that the economic crisis caused by shot down in China, where COVID-19 first occurred, could be quantitatively assessed from an industry-specific perspective on how it spreaded to the stock market. In particular, this study has utilized DLLFM because that model can measure the coefficients of time varying correlations among those various industries of Shenzhen Stock Market. Using six major Industrial Stock Index such as Manufacturing, IT, Finance, Transportation, Whole sale & Retail, Construction from 1/5/2015 to 8/31/2020, this study finds the evidence of common factor and time-varying correlations in addition to the industry-specific idiosyncratic risk. According to the main estimated results of this paper, jump risk of common factor comes every 7.82 trading days in Shenzhen stock markets and about 87 percent of the common factor of the Shenzen stock markets can be explained by Shanghai market risk, which is China stock market risk. Also, some part of unobserved common factor of the Shenzen stock markets may be explained by foreign exchange market risk of China. And the portion of foreign exchange market risk may be increasing as the Chinese government announces the new method of calculating standard value of yuan exchange rate in August 2015. So far as concerning the time varying correlations among those indices, the levels of correlations seem to be comparatively high, but those levels are going down transiently after the occurrence of COVID-19. In this study, we are trying to investigate the Shenzen stock markets where president Xi Jinping has visited couple of times as the center for bio, information, communication, venture markets for the future of Chinese economy to cope with US-China trade dispute. We have been very much interested in finding the real nature of the latent common factor of the Shenzen stock markets. Conclusively, the findings are, some of them Chinese systemic risk, some of them foreign exchange risk. All of these suggest that the use of multivariate models such as dynamic linear latent model seems to be essential to comprehensively analyze those industry-specific indices in the course of the transition of disaster risks such as COVID-19. Also unobserved common jump and heteroscedasticity seem to be those main characteristics of chinese financial time series. According to the main results of this paper, two pillars of the Chinese stock markets, Shanghai and Shenzhen, may look quite similar, but seem to be different from the view point of the portfolio or index investments. Somehow it would be better that investors should pay attention to those characteristics of the latent common factor of the Shenzen stock markets when it comes to the risk management strategies. It seems that the similarity of two stock markets from the stand point of the nature of risk, mainly comes from the financial regulations of Chinese government.

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This paper examines how cross-listing of Chinese A- and Hong Kong H-shares (AH cross-listed) affects the value of corporate cash holdings. Using a sample of AH cross-listed firms, we find that the value of cash holdings is higher for cross-listed than for non-cross-listed firms. The results remain robust to alternative measures of change in cash and consideration of state-owned enterprises. The AH cross-listing valuation premium for cash holdings decreases after a governance reform in the Chinese stock market. Our results suggest that AH cross-listing enhances firms’ transparency and disclosure, and thereby the value of cash holdings relative to non-cross-listed companies.

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Firms can issue stocks classified in many ways, including in terms of voting rights, dividend rights, redemption rights, and conversion rights. This study investigates the desirability of giving firms greater freedom to choose their share classes. Making use of the setting created by the 2011 Commercial Act amendment that significantly relaxed regulation over share classes in Korea, we study the motivation behind and the effect of adopting two newly emergent classes: preferred stocks convertible to voting stocks at the discretion of management and preferred stocks redeemable at the discretion of investors. We find that firms adopt the former for managerial entrenchment purposes and destroy firm value, while firms adopt the latter in times of financial constraint but fail to arrest the decline in firm value.

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This study seeks to explore the peculiar impact of critical indicators: dollar index, oil price, sovereign credit default swap (CDS), stock market returns and Libor-OIS on the Korean won (KRW) cross-currency basis (CCB) at the maturity of 1-and- 5-years by segregating the timeframe from March 2003 to September 2019 into four periods: before the global financial crisis (GFC), during GFC, during eurozone crisis and after the crisis. Hence, for this time series data, simple linear regression with ARMA errors is employed to determine the direction and magnitude of regressors’ impact on KRW as well as to deal with possible heteroskedasticity and serial correlation issues. Vector autoregression (VAR) is used to obtain forecast error variance (FEV) decomposition to ascertain the dynamic relationship and predictive influence of these variables, especially in the advent of shocks. It is affirmed that CDS, stocks and Libor-OIS were most significant during GFC. Also, all regressors were relatively significant for the overall dataset with oil having the least impact.

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