As high volatility in asset values can affect collateral values negatively and increase the likelihood of defaults by loan borrowers, facing high price risks in housing markets, banks need to lower risk exposures and reduce loans. Our analysis of US commercial banks shows that banks with higher housing price risks provided fewer loans secured by residential properties before the 2008 financial crisis. These results suggest that banks consider housing price risks when making loan decisions. However, banks with higher housing price risks that were significantly reliant on wholesale funding provided more residential loans, suggesting that they take more risks to improve their short-term performance which can compensate for cost of wholesale funding.

• EndNote
• RefWorks
• Scholar's Aid
• BibTeX

Export Citation Cancel

This research examines corporate cash holdings in Vietnam, an emerging market, and finds reverse peer effects on them - that is, a firm’s level of cash holdings negatively relates to those of its peers. We also note the reverse peer effects are stronger for firms facing less competition and with low intangibility. Because the Vietnam market has noticeably lower competition and investment in innovation than in developed economics like the U.S., our evidence supports the role of competition and innovation investment in driving cash holdings’ peer effects and complements the literature that mostly focuses on developed economies. Our findings are consistent with the notion that some firms strategically accumulate cash to drive their competitors’ cash level lower when they are in less competitive industries or when they have lower innovation investments. Thus, the existing competition or innovation environment is crucial when modeling the cash holding behavior among industry peers. However, our tests on the preemptive motive for peer effects on cash holdings are inconclusive. Lastly, our results also support heterogeneity across countries in peer mimicking behavior and contributes to the cash holdings literature for the Vietnam market.

• EndNote
• RefWorks
• Scholar's Aid
• BibTeX

Export Citation Cancel

Recently ESG (Environmental, Social, Governance) activities have attracted a lot of theoretical and practical attention. With these changes, there have been an active research on corporate social responsibility activities measured by ESG and major financial strategies of companies. Related with previous research, this study seeks to systematically analyze the association between social responsibility activities and dividend policies of corporations. Studies such as Rakotomavo (2012) and Benlemlih (2019) suggest that social responsibility activities have a positive impact on dividend policy, while studies such as Pham and Jung (2020) and Ni and Zhang (2019) report that social responsibility activities have a negative effect on dividend policy. In addition, the domestic previous research has analyzed the effect of social responsibility activities on dividends by using a simple OLS regression. These studies have not considered the endogeneity problem of variables and the partial adjustment of dividends with panel data. They did not investigate the relation between corporate social activities and stability of dividends either. Studies on these topics with Korean firms are still lacking. The dividend theory has been greatly developed with signaling theory, agency theory, and life cycle theory based on the dividend-irrelevance theory of MM (1961). If the signal theory of dividends is true, it can be argued that social responsibility activities will affect dividend payout level positively (Benlemlih, 2019). If the outcome hypothesis of agency theory of dividend is true, social responsibility activities will show a positive relationship between dividend levels (Adjaoud and Ben-Amar, 2010), conversely, if substitute hypothesis of agency theory is true, social responsibility activities and dividend levels will show a negative (-) relationship (John and Knyazeva, 2006). According to life cycle theory, corporate social activities have a positive association with dividend payout (Rakotomavo, 2012). In addition, Benlemlih (2019) shows that the companies with excellent levels of social responsibility activities prefer to have more stable dividend policy in order to signal a reduction in agent costs through dividend and a sound management policy. Matos, Barros and Sarmento (2020) also show that the firms with more sustainability have more stable dividend policies by using data from the European securities market. These studies imply that social responsibility activities are expected to have a significant impact on the stability of dividend policies. This study utilizes the ESG ratings provided by the Korea Corporate Governance Service as the measures of CSR/ESG activities of firms. We collected the data from the non-financial firms listed in Korea security market during the period of 2013 through 2019. The financial data required for analysis used the KIS-VALUE database of Korea Credit Evaluation Information. The information about the major shareholders’ equity was collected from the section of ownership status in the annual reports of the firms. The samples used in this study are 4,126 firm-year unbalanced panel data. The empirical analysis was conducted by applying a fixed effect panel analysis and a two-stage fixed effects panel analysis using the industrial average of social responsibility activities as an instrumental variable for social responsibility activities to alleviate the endogenous problem of social responsibility activities. The results of the analysis are as follows: First, the empirical results show that the ESG activities of the company have different effects on dividend level according to the measures of dividend payout. When dividend payout ratio (dividend/net income) is used for the dependent variable, only the social rating has been analyzed to have a statistically significant and positive effect on dividend. On the other hand, when dividend rate (dividend/total asset) and dividend yield(dividend/stock price) are used as dependent variables, the company's ESG integration rating, environmental rating, social rating, and governance rating have been shown to have a significant and positive impact on dividend. These results shows that the increase in corporate social responsibility activities among corporate ESG activities can improve the dividend propensity of companies. Since the dividend payout ratios of Korea firms remain relatively low, it is suggested that the company's social responsibility activities should be strengthened more in order to increase dividend propensity. In addition, it can be confirmed that the company's ESG activities have a significant and positive impact on the dividend level of the company, so that the company should be more interested in ESG for sustainability. In other words, the more a company have interests in the various stakeholders of the firm, the more profitable it is for shareholders. Second, this the findings can be explained by the outcome hypothesis of agent theory and the life cycle hypothesis. The cash ratio, which is the proxy variable of the agency issue, has a significant and positive effect on dividend propensity. Cash ratio, majority shareholder equity, foreign equity have a positive association with the dividend ratios, and the majority shareholder's ownership has a significant and positive impact on dividend yield. In addition, it was also confirmed that the ratios such as operating cash flow/total assets, earned surplus/total assets, and gross operating profit/total assets, which are the proxies of life cycle theory, are significantly and positively associated with the dividend rate. The variables such as market value/book value, earned surplus/total asset, gross operating profit margin have a significant and positive impact on the dividend yield. Third, the ESG activities were analyzed to have a significant impact on the stability of dividend policy. The better the ESG activity, the higher the target dividend level, and the faster the difference between the target dividend level and the actual dividend level was adjusted. This means that the better the ESG activity, the higher the sustainability, and the higher the dividend level can be maintained. Since the company is more profitable with better ESG activity, it can be adjusted to the target dividend level more quickly.

• EndNote
• RefWorks
• Scholar's Aid
• BibTeX

Export Citation Cancel

This study empirically analyzed the impact of the reduction in the multiplier in the derivative market conducted in 2017 on the trading behavior of investors in the KOSPI 200 option market. The KOSPI 200 option market, which was opened in 1997, has been the world's No. 1 in terms of trading volume since the 2000s, but it has been argued that the market size is too large compared to the GDP level or the market capitalization of the spot market. Accordingly, the financial authorities abolished the KOSPI 200 option purchase-only account from 2011, and from March 2012, the transaction multiplier of options was drastically increased from 100,000 won to 500,000 won. This was intended to reduce speculative transactions in the option market by increasing the transaction multiplier to limit individual investors' barriers to entering the market, as individual investors participating in the market without sufficient prior knowledge of derivatives. The regulation on entry into the option market shifted to an easing policy to reduce the transaction multiplier of KOSPI 200 derivatives to 250,000 won, which is 1/2 of the previous one, after March 2017. The measure to change the transaction multiplier applied to the KOSPI 200 option in 2012 and 2017 is an important policy example that brought structural changes to the quality level of the market. The effectiveness of the policy due to such a change in the transaction multiplier should be carefully evaluated afterwards in terms of not only the level of liquidity related to the size of the derivative market, but also the behavior of investors participating in the derivative market. This study analyzes the impact of the reduction in the multiplier of KOSPI 200 derivatives, which took effect in March 2017, on the trading behavior of each investor, not the 2012 KOSPI 200 option multiplier event, which previous studies focused on. This is an example of examining the effect of the derivatives activation policy by comparing the effect of the increase in the option multiplier in 2012 and the effect of the reduction in the multiplier in contrast. The main empirical findings can be summarized as follows: During the period after the reduction of multiplier, foreigners' leadership in trading was strengthened, continuing to outperform the institutions and individuals. The institution's trading performance was superior to that of individuals or foreigners in the period before the reduction of multiplier, but the institution suffered significant losses in the period after the reduction. In addition, the inferior performance of individuals with accumulated losses from the period before the reduction was further worsened during the reduction period. Foreigners who experienced low profits in the period before the multiplier reduction, monopolized profits during the period after the multiplier reduction, and showed superior performance against losses of individuals and institutions. These results suggest that individual investors have increased access to the option market as a result of the multiplier reduction, but still persisted poor performance. Finally, the policy of multiplier reduction can be interpreted to have a differential effect on the trading performance due to the option strategy implemented by institutions and foreigners. The results of this empirical analysis suggest that individual investors, who have increased access to transactions due to the easing of entry barriers due to the multiplier reduction, are still inferior in terms of trading performance. This is a result of reaffirming that the multiplier change policy consistently with previous studies that reported that individual investors' losses continued despite the strengthening of entry barriers after the 2012 multiplier increase had no significant effect on changes in individual investors' trading behavior.

• EndNote
• RefWorks
• Scholar's Aid
• BibTeX

Export Citation Cancel

• EndNote
• RefWorks
• Scholar's Aid
• BibTeX

Export Citation Cancel

This study analyzes the effect of house prices on the insolvency of household debt after controlling for the individual characteristics of household debt using micro data on household debt. We analyze household debt by dividing it into self-employed loans and non-business loans, and analyze the default rate by dividing it into credit rating, income, and income/loan ratio. Additionally, the effect of housing prices on the household debt default rate before and after the real estate deregulation policy is analyzed. Also, unlike previous studies using a single real estate price index, the effect of regional housing prices on the household debt default rate is analyzed using the regional real estate price index. This study differs from previous studies in that it analyzes 582,949 borrowers’ information for the past 22 quarters (from March 2012 to June 2017) using the Bank of Korea household debt DB. The representativeness of the sample and the reliability of the analysis result can be guaranteed in that the sample was drawn from all borrowers rather than some financial companies or some loan information. Previous research mainly uses a single real estate price index or real estate price index in major cities, so in most cases, regional real estate price differences are not considered. This study differs from previous studies in that it uses housing prices based on city/gun/gu standards. The main results are as follows. First, the housing price has a significant negative (-) effect on the household debt default rate. It has been confirmed that if the house price rises, the default rate of household debt in the next quarter will decrease, but if the house price falls, the default rate of household debt in the next quarter will rise. Despite the recent continuous increase in household debt, the stable trend of the default rate of household loans appears to be largely due to the rise in housing prices. However, if housing prices fall in the future, the risk of household debt may increase, raising the need for preemptive management by policy authorities. Second, the housing price has a significant effect on the household debt default rate of non-business owners, low-credit and low-income borrowers with low financial access, and borrowers with a small income/loan ratio. These results are consistent with the research results of Mian and Sufi (2011), who show that house prices have an effect on the household debt default rate through credit channels due to an increase in credit supply independent of individual income growth. In particular, the effect of house price on the household debt default rate is clearly observed in the low-credit and low-income group, consistent with the findings of Mueller and Yannelis (2019), and the household debt risk of low-credit borrowers and low-income borrowers. Finally, after the real estate deregulation policy was implemented, the effect of house price on the household debt default rate was significant. Since the real estate deregulation policy was implemented in July 2014, the expansion of credit supply by financial institutions and the rise in housing prices show that the household debt default rate has been significantly lowered. Therefore, fluctuations in the credit supply of financial institutions are the main path that housing prices affect the household debt default rate. If house prices drop sharply, the problem of system risk in the financial market due to bankruptcy of vulnerable groups is expected to be serious. Therefore, this study provides implications for a preemptive countermeasure against the risk of household debt of financial institutions and the system risk of the financial market due to household debt default.

• EndNote
• RefWorks
• Scholar's Aid
• BibTeX

Export Citation Cancel

Using data on Korean non-financial companies (NFCs) over the sample period from 2010-2019, we find that the traditional measure of corporate cash holdings underestimates their financial assets. Firms with lower cash flow tend to invest in risky financial assets, which is inconsistent with the precautionary motive of cash holdings. We further show that distressed firms facing operational difficulties invest more in risky financial assets in response to a decrease in operating profit or sales growth rate, or an increase in short-term financial liability. We argue that NFCs invest in risky securities in pursuit of yield to make up for their lower operating performance.

• EndNote
• RefWorks
• Scholar's Aid
• BibTeX

Export Citation Cancel

This study analyzes the outsourced chief investment officer (OCIO) market using a multi-period, multi-dimensional auction model. The OCIO service is a type of consignment asset management system. Unlike a traditional consignment management system, however, the OCIO service can be characterized as a comprehensive wealth management service because the asset owner comprehensively delegates the rights to strategic asset allocation, which determines the proportion of investments in the core asset class, to the asset manager. Although the OCIO market initially developed in other countries, it has recently begun to attract attention in Korea, and the competition among managers is fierce. Managers and securities companies participate in the OCIO market as suppliers as fund-type retirement pensions are expected to be implemented, and, thus, private funds will likely emerge as the major consumers in the OCIO market. Korean OCIOs offer lower average fees compared to OCIOs in developed markets. This difference is due to the initial competition in the Korean OCIO market. Suppliers can offer lower management fees in the Korean market because even if they incur short-term losses, operating in the OCIO market will be profitable in the long run. The OCIO market is initially being evaluated as having high growth potential. As interest rates remain low, funds' demand for OCIO services to improve profits is increasing in the short term. Accordingly, the OCIO market has grown significantly, the ripple effect on the operating market is increasing, and interest in the OCIO market is rising. Because funds have less expertise in asset management than managers do, OCIO services may continue to be used to ensure high profits or stable management. The OCIO market is expected to grow, and, thus, management companies are competing to gain market share by offering low management fees. In addition, because the OCIO market is likely to take the form of a monopoly, a manager can benefit from taking over the OCIO market even if it incurs short-term losses. Because the OCIO service is a comprehensive asset management system, including strategic asset allocation, it is necessary to establish a separate OCIO system to provide efficient services. Accordingly, managers with experience in supplying these services may build OCIO systems more efficiently than those without experience can. Thus, the quality of OCIO services can be improved by enhancing intrinsic capabilities, such as by improving the system to manage assets according to a fund’s purpose. This difference suggests that the managers who previously provided OCIO services may be superior choices for future OCIO services. Accordingly, it is very likely that a few managers that are selected as OCIOs in the early stages and create efficient OCIO systems will monopolize the market. For these reasons, managers have an incentive to offer low management fees to capture the Korean OCIO market given the potential future profits. Thus, the competition among managers in the Korean OCIO market should be analyzed with a multi-period model. However, previous studies of the Korean OCIO market focus on the agency problem and analyze the market using only single-period models. Accordingly, this study constructs a multi-period, multi-dimensional auction model. We expand upon existing multi-dimensional procurement auction models by assuming that a manager’s efficiency and quality improve as the manager supplies OCIO services. This study analyzes the OCIO selection process using both a single-period, multi-dimensional model and a multi-period, multi-dimensional model, and we compare the results of both models. The equilibrium in the single-period model indicates that the more efficient the manager’s OCIO system is, the lower the optimal service quality is and the higher the optimal management fee is. Thus, the manager with the most efficient OCIO system is selected as the OCIO. The multi-period model also includes the assumption that efficiency improves after selecting an OCIO in the single-period model. We derive a dynamic equilibrium through dynamic optimization and confirm that a more efficient system is associated with a higher optimal service quality and a lower optimal fee, as in the single-period model. In both models, we find that a highly efficient company is selected as the OCIO. This result suggests that the OCIO market is highly likely to be oligopolistic. However, the optimal fee in the multi-period model is lower than that in the single-period model. This finding shows that when supplying OCIO services is expected to improve efficiency, price competition among managers may become overheated.

• EndNote
• RefWorks
• Scholar's Aid
• BibTeX

Export Citation Cancel

This paper reviews recent studies on banking in Korea by classifying a substantial body of literature into three categories – the role of banks in the real economy, the efficiency and performance of the banking industry, and regulatory and policy issues. This paper differs from previous survey literature in that it offers a comprehensive systematic literature review of banking studies in Korea in a decade on from the global financial crisis and presents statistics of research articles on various topics in banking published in major economics and finance journals. We find the rising trend of banking research across all subjects, and in particular, dramatic increases around the global financial crisis. This paper also reveals a lack of studies on several topics such as distributed ledger technologies and central bank digital currency, recommending future research on these topics.

• EndNote
• RefWorks
• Scholar's Aid
• BibTeX

Export Citation Cancel

This article reviews research conducted from 2011-2020 on the corporate governance of Korean firms. The purpose is to promote academic interest in Korean corporate governance research especially among non-Korean scholars and to provide guidance to young Korean scholars who are working in this area. We begin with the institutional features that are unique to Korea. We explain how they allowed researchers to develop interesting hypotheses that cannot be studied elsewhere, to establish causality that is not possible in other country settings, or to obtain data that are not available elsewhere. Then, we review the studies that examine the control (ownership) and governance structures of Korean firms. We pay attention to their determinants and their consequences. Lastly, we raise methodological concerns in existing studies and also discuss research topics for future research.

• EndNote
• RefWorks
• Scholar's Aid
• BibTeX

Export Citation Cancel