This paper examines the correlation estimates for some East Asia equity markets using the CC-MGARCH and DCC-MGARCH. Using daily return series, the equity markets of Korea, Japan, Hong Kong, and Singapore are analysed for the period 1991 to 2005. Parsimonious specifications for the multivariate GARCH framework are used to shed light on the correlation structure of these markets. The dynamic nature of the correlation between pair-wise countries is captured using the dynamic conditional correlation multivariate GARCH framework and explained. First, there are no strong evidence of time-varying correlations for the sample period. However, there are weak evidence of time-varying correlation between some countries in post-crisis period. Second, the correlation breakdowns are occurred between Korea and other countries about the time of the Asian financial crisis, but it do not appear in the case of other countries. Third, the correlation generally has a property of long-run persistence, but the degree of persistence are much weakened between countries except Korea in post-crisis period. Finally, the local extreme shock affects correlation, and there is also a evidence of correlation asymmetry. Namely, the effect of negative extreme shocks are more stronger than that of positive extreme shocks.

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The purpose of this study is to analyse the effect of the ownership structure on the opportunistic behavior of a firm's financing from the perspective of the agency theory. In this study, we investigate 365 security issuing cases from a sample of non-financial firms listed on the Korean Stock Exchange between 2001 and 2003. The main findings from this study are as follows. Firstly, we find that opportunistic financing only exists for equity issuing firms. For debt issuing firms, there is no evidence of opportunistic behaviour. The results imply that fixed commitments of debt financing reduces the motivation to sell overvalued debt to outside investors. Secondly, we find that increase in large shareholder ownership for equity issuing firms resulted in the decrease of opportunistic behavior, thus supporting the agency theory. Finally, we find that the information asymmetry in the equity issuing market induces a firm's manager to sell overvalued equity to outside investors. Our findings suggest that more efforts are needed to guarantee the transparency in the capital raising market to protect innocent outside investors.

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This paper investigates the empirical determinants of corporate cash holdings for a sample of Korean firms over the period 1991-2004. We find that the level of cash holdings is significantly affected by the growth and investment opportunity set, debt, firm size, dividends, net working capital, investment expenditure and cash flows. Firms with strong growth opportunities and larger amounts of cash flows show high ratios of cash holdings. Small firms hold higher levels of cash holdings because they are more likely to experience financial distress. We also find that the level of cash holdings has the negative relation with debt, intangible assets, and investment expenditure. Firms with higher dividend ratios have higher cash holdings.Our results show that levels of managerial ownership represented by the largest shareholder's portion exert a significant and positive influence on cash holdings of Korean firms in the pre-IMF crisis period. This suggests that Korean firms had severe agency problems and higher managerial perk incentives in the pre-IMF crisis period. Chaebul firms which are a member of Chaebul business group, hold lower levels of cash holdings due to the availability of their internal capital markets. Cash flow variability and R&D variables show mixed results.

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This study analyzes the variance ratio test in the frequency domain. Using the concept of the summation filter, its formulation is clearer in the frequency domain rather than in the time domain. We can formulate the variance ratio and explain its implications in the frequency domain. Two applications of the spectral analysis are presented. First, we try to explain the low power problem of the random walk hypothesis, suggested by Summers (1986). It is due to that AR(1) alternative hypothesis is not identifiable with the random walk null hypothesis in formulating the persistent transitory component. Second, we analyze the applicability of the technical methods such as the moving average analysis. It is shown that the variance ratio can be used in selecting cycles with the appropriate period.

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The purpose of the paper is to understand the motivation of the internal transactions among the member firms of Korean conglomerates by investigating their determining factors. Using the transaction data for the periods of 1997 to 2003, we find that debt guarantees are mainly used for the purpose of propping financially weak member firms, while illegal internal transactions are mainly used for the purpose of tunneling corporate wealth from minority shareholders to controlling shareholders. The results suggest that controlling shareholders are willing to suffer financial loss in the short run to support their member firms. We also find that the pyramidal structures of conglomerate groups affect the decision on internal transactions.

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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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