This paper examines the economies of scale and scope in Korea’s banking industry by applying a spline cost function approach with other widely-used cost functions, such as the translog and Fourier cost functions. One advantage of the spline function technique is that it overcomes the limitations of the translog function. It also has ability to better identify a variety of trends with smaller parameters than the Fourier function even when the sample size is small.The results, based on the spline cost function, indicate that there exists an economy of scale in Korea's banking industry. Regional banks have a relatively greater economy of scale than nationwide banks. The economies of scale exist in the banking industry across time periods：pre-financial crisis period of 1987～1997, between 1998 to 2000 when restructuring in the banking industry was earnestly promoted, and the final stage of restructuring in 2001～2004. However, our study does not show significant evidence of existence of scope economies, in that two different approaches do not produce the same conclusion. That is, the classical measure of scope economies finds no economies of scope for both nationwide and regional banks, whereas another measure of scope economies, called expansion path subadditivity, indicates there exists an economy of scope for both nationwide and regional banks. The economies of scope are found prior to the financial crisis in 1997 with the results differing based on the two measures. However, our study finds no economies of scope in the times following the crisis. 攀* Sogang University, College of Business Administration

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In recent years, the issuances of equity linked products such as ELD (Equity Linked Deposit) and ELS (Equity Linked Securities) have been rapidly growing in Korea, thanks to low deposit rates and competitions between banking and securities industries. A prototype of these equity-linked products is a bond or deposit combined with barrier type option, for which its final payoff depends on the maxima or minima of underlying securities during its life. One of special features of these embedded options in the equity linked products is that they have much longer maturities than exchange-traded options do. Consequently, the stochastic nature of interest rates may be important in pricing barrier options embedded in ELD and ELS.The purpose of this paper is to derive closed or semi-closed form solutions for various type of barrier options under stochastic interest rates. Specifically, using T-forward measures, we derive not only closed-form solutions for options with fixed barriers, but also semi-closed form solutions for options with discounted barriers. Furthermore, we calibrate the derived solutions with parameters estimated from KOSPI200 Index and interest rates data to see the sensitivity of long-term barrier option premiums with respect to the assumptions and parameters of a stochastic interest rates model

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This paper concerns the structure of Korean business groups. We investigate the factors that affect a controlling shareholder’s decision regarding the structure of his business group using financial and ownership data on conglomerate groups in Korea. We define new measures that represent the levels of vertical and circuitous structures of a group. We empirically confirm that controlling shareholders strategically choose the structure of their business groups to secure control over the groups and to seek private benefit of control. The risk diversification and propping incentive of controlling shareholders is also found to affect the decisions.

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Using the ownership structure of large business groups, we investigate the effect of a disparity between cash flow right and voting right of business group member firms on their firm value and performance. We find that there is no significant negative relation between the disparity and the firm value proxied by market-to-book ratio. Using the multivariate regression using control variables such as firm size, capital structure, and firm age that might affect firm value, we also failed to find a statistically significant relation between the disparity and the firm value. In order to control for a possible endogeneity problem of the disparity, we use the firm value three years after the measure of the disparity as welll as two-stage least squares method. However, the results are qualitatively the same. In addition to the analysis of publicly traded member firms, we include private firms to investigate the relation beween the disparity and the operating performance such as operating income return on asset and EBITDA return on asset. We also fail to find any significant relation between the disparity and operating performance in the univariate analysis as well as in the regression analysis. The findings in this paper do not support the notion that the disparity negatively affects the firm value and operating performance of large business group member firms.

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After foreign currency crisis in 1997, many firms went bankruptcy, and their restructurings have been one of major issues in financial economics. Under perfect information, viable firms must be restructured quickly and actively. But debtholders do not have perfect information about viability of bankrupt firms.In this situation, debtholders do not take active actions such as debt-equity swap or liquidation. They may take passive action - maturity extension. Maturity extension will be best action for the debthoders, but it will result in lower resturction performance.In this study, I analyse private property donation of manager. The manager knows much about firm's viability than debthoders and this private property donation will play a signal of firm's viability.I investigate under which situation, manager will propose private property donation and efficiency of restructuring process will be improved.

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This study investigates the wealth effects of open market stock repurchases on shareholders and bondholders and tests the relative importance of the signaling hypothesis and wealth transfer hypothesis regarding the motivation of stock repurchases. The empirical results show that the CAR around the announcement of share repurchases is 2.70%, while the YSC (Yield Spread Change) is -0.13%, which implies that both values of stocks and bonds increase at repurchase announcements. In addition, the correlation between the shareholder's wealth and the bondholder's wealth is positive only in the firms with speculative-grade debt. However, considering that both shareholders' and bondholders' wealth increase even in the firms with investment-grade debt, the signaling hypothesis seems more persuasive than the wealth transfer hypothesis.

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Using the concept of extreme value theory and copula, this paper shows how to estimate association across financial markets. We select Peaks-Over-Threshold(POT) method and use Generalized Pareto Distribution(GPD) as the marginal distribution. We use the most popular used Gumbel copula as well as other three copulas. We fit these copulas to daily stock index returns of six countries and use upper and lower tail dependence to identify and quantify the tail dependence among stock returns.Empirical result show that asymptotic dependence exist between Asian-Pacific markets. And such extremal dependence become stronger after Asian Financial Crisis. But we failed to detect asymptotic dependence between US and Asian-Pacific markets.

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In this study, we investigated the market and operating performances and their determinants of spin-offs for Korean firms. Firms generally increase focus by spinning off unrelated business. Thus, it is expected that spin-offs have a significantly positive influence on the performance of spin-offs parents.The first of our main results was that spin-offs had significantly positive short-term and long-term abnormal returns. Also, we found a significant improvement in operating performance in the year after spinning off. Second, it was found that corporate focus increased significantly and the level of information asymmetry decreased insignificantly after the completion of spin-offs. The results support the focusing hypothesis rather than information asymmetry hypothesis for the spin-off. Third, there was a positive relationship between focus increase and both of market and operating performances. That is, the performance of focus-increasing spin-offs outperformed non-focus-increasing spin-offs. Thus, this result also confirms the focusing hypothesis. In addition, the evidence on capital-raising activities and cross-sectional regression also support the focusing hypothesis.

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Major empirical regularities in the distribution of time series of financial asset return data are their skewness and excess kurtosis. To capture the non-normality in estimating financial time series using GARCH models, many researchers have introduced more flexible parametric distributions than the normal distribution such as Student-t and GED. While considerable attempts have been made in modeling conditional distribution in univariate GARCH models, there has been little work on the multivariate conditional distribution function in multivariate GARCH models. Most academic studies in multivariate GARCH models have relied on multivariate normal distribution. The purpose of this paper is to introduce into the multivariate GARCH models a flexible multivariate parametric distribution in order to capture the non-normality of financial time series in a multivariate dimension. For an illustrative purpose, we apply the new bivariate distribution function to modeling time varying dependence of returns on KOSPI and won/dollar exchange rate, and compare the results with those of normal and Student-t models.

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We investigate the impact of market opening to foreign investors in 12 emerging markets using firm-level data as well as market-level data. As International Capital Asset Pricing Model (ICAPM) predicts, our results show apparent revaluation effects after market liberalization. More importantly, the results show significantly different impact based on firm size, which is used as a proxy for foreign investors' demand. Large firms, believed to be preferred by foreign investors, show much larger revaluation effect than small firms. This study eventually provide a better understanding of the market liberalization, especially using the firm-level data we could understand the real market liberalization impact based on the real demand from foreign investors.

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