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This study explores whether adopting mandatory bid rule mitigates private benefits of control during instances of control transfer. We posit that implementing the mandatory bid rule could motivate the acquirer to self-limit their private benefits of control. According to the model proposed by De la Bruslerie (2013), an acquirer's offer of a higher control premium, signaling their intention to extract more significant private benefits following the control transfer, would likely make minority shareholders more inclined to tender their shares. This is due to the attractive offering price and the elevated risk of expropriation. Such a scenario would invariably necessitate the acquirer to purchase shares beyond the optimal threshold, thereby shouldering the consequential costs. Foreseeing these potential consequences, acquirers would be motivated to reduce the control premium and moderate their intention of extracting private benefits. To test our hypothesis, we exploit the staggered adoptions of mandatory bid rule in 41 nations over a 50-year period (1972 to 2022). We take multiple steps and go through a meticulous process to ensure our samples can accurately measure the private benefits of control. This yields 1,421 deals as the final sample. We define private benefits of control as the relative difference between the price paid to the incumbent blockholder and the market price of shares immediately following the deal announcement, multiplied by the proportion of shares acquired (Dyck and Zingales, 2004). Employing a difference-in-differences approach, our findings align with the theory suggesting that the mandatory bid rule encourages acquirers to reduce the private benefits of control. The deals above the threshold exhibit significantly lower private benefits of control after the rule's adoption, while those below the threshold show negligible changes post-adoption. In tandem, we observe a similar trend with control premiums. The results remain intact to a series of robustness checks. First, the results are even more pronounced when restricting the sample to countries where we have samples before and after the rule adoption. Second, the results survive even when limiting the sample to deals where incumbent controlling shareholders owned substantial equity stakes in the target firms. Third, the results stand firm even after financially distressed target firms are excluded from the analysis. We also find evidence that our results are not merely driven by selection bias, which would occur if acquirers seeking high private benefits predominantly acquired shares below the threshold and acquirers pursuing low private benefits mainly acquired shares above the threshold. Above all, the increase in private benefits of control after adopting the mandatory bid rule for deals below the threshold is substantially smaller in magnitude compared to the decrease in private benefits of control for deals above the threshold. Additionally, the deal-fraction analysis of Lee, Kim, and Kim (2023) reveals that the fraction of deals above the threshold does not drop significantly after adopting the mandatory bid rule. Overall, our study offers the first empirical evidence of the effect of mandatory bid rules on the private benefits of control. Specifically, we show that the mandatory bid rule influences acquirers to reduce the private benefits of control. Our results also provide an important implication for the ongoing debate regarding whether the mandatory bid rule increases acquisition costs. Should the rule lower private benefits of control (and the control premium), as shown in this study, it is unlikely that the acquisition cost will rise, thereby not impeding acquisition activities.

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We empirically analyze the effect of information transfer between the KOSPI200 option market and the stock index market using the call/put option trading value ratio. According to the theoretical framework proposed by Chen et al. (2005), the ratio of call/put trading values is calculated every minute in order to estimate the probability ratio of the index increasing versus decreasing. Then, we implement the indicator-following trading strategy, which buys the index when the benchmark call/put ratio increases more than the pre-defined sensitivity threshold and sells the index when the benchmark call/put ratio decreases more than the sensitivity. Using the calculated daily returns of the indicator-following trading, we test whether the indicator-following trading strategy significantly outperforms the simple buy-hold strategy that takes a long position on the index at the beginning of the market and clears the position when the market closes for each day. If returns of indicator-following trading are significantly larger than the returns of the buy-hold strategy, the empirical results can support the hypothesis that information is disseminated from the KOSPI200 options market to the stock index market, and the call/put ratio can be treated as a predictive information variable. By controlling various environments of indicator-following trading, we investigate market conditions for maximizing the price discovery effect of our information variables: trading timing, trading sensitivity, volatility of the index, time to maturity of the option, and call/put ratios for different moneyness. In addition, we compare the return predictability of our information variables to the call/put option trading volume ratio, take account of transaction costs, and examine the effect of lowering the trading multiplier of the KOSPI200 option. The results of our study are as follows. First, the indicator-following trading on the total call/put ratio exhibits significantly higher returns than the returns of the buy-hold strategy by 18bp on average per day with the corresponding t-statistic of 7.8, which supports the price discovery feature of our information variable for the KOSPI200 index. Also, the return predictability remains effective for a minute under a 1% significance level. Further, we numerically verify the existence of the local maximum point whose sensitivity maximizes the average return per trading of the indicator-following strategy. As the existence of the local maximum is consistent with the theoretical prediction, the underlying theoretical framework could be justified. Second, the return predictability extends to 2 minutes for the call/put trading value ratio on the at-the-money option, which implies that the persistence of the price discovery stems from the trading information of the at-the-money option. The argument is supported by additional empirical tests under different moneyness ranges. Moreover, the shorter the remaining maturity of the option and the greater the volatility of the stock index is, the stronger the price discovery effect becomes. Third, comparing the returns of indicator-following trading, the return predictability of the call/put trading value ratio is superior to the call/put trading volume ratio used in the existing literature. Fourth, when considering actual transaction costs, the indicator-following trading strategy does not generate excess returns, which indicates efficient and immediate information delivery between the actual option market and the stock index market. Lastly, lowering the trading multiplier of the KOSPI200 option improves only the trading performance of the trading strategy using the out-of-the-money options, and we interpret that the policy hinders the efficiency of the out-of-the-money option market. Our study contributes to the strands of literature spanning the market microstructure between the KOSPI200 option market and stock index market, the high-frequency trading, and the policy of the Korean option market. By demonstrating the distinguished and superior return predictability of the call/put option trading value ratio compared to the counterpart of trading volume, we argue that the information can flow from the index option market to the stock index market. That is, our results shed light on the unresolved debate on the direction of the information flow between those two markets. Including the significant persistence of the return predictability of the call/put trading value ratio, various empirical findings under different trading conditions support that the KOSPI200 option market leads the stock index market. Meanwhile, we highlight the importance of using high-frequency data because implementing the high-frequency trading strategy allows us to estimate more precise persistence of return predictability than prior research. Additionally, complementing the extant research reaching conflicting conclusions on the effectiveness of lowering the trading multiplier of the KOSPI200 options, identifying the effect of the policy with the indicator-following trading strategy on call/put trading volume ratio enables us to support the partial efficacy of the policy.

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This paper investigates how the cashflow rights of a parent company’s minority shareholders are affected by a subsidiary listing after a carve-out. It has been argued that the listing of a subsidiary may substantially dilute the cash flow rights of minority shareholders. However, this paper shows that minority shareholders might benefit from such carve-outs particularly when the cost of capital in the initial public offering (IPO) market is low. In a hot IPO market, issuing new shares through the subsidiary’s listing may reduce the cost of finance for the parent’s minority shareholders. In the counterfactual case where the same amount of funds was raised in seasoned equity offering (SEO) of the parent company, the dilution of minority shareholders’ cash flow rights may be greater. In the example of LG Chemical, the cashflow rights of minority shareholders resulting from the IPO of LG Energy Solutions is 54% of LG Chemical, whereas raising the same amount of funds through a SEO without listing the subsidiary company would have resulted in only 46% cashflow rights, indicating that the cashflow rights would be greater in the case of subsidiary’s IPO. Furthermore, the analysis of stock prices shows little evidence of negative impacts of the IPOs of subsidiaries on parent companies’ stock prices. In fact, returns on the parent companies on the announcement of carve-outs or listings are often positive, and long-term stock prices do not indicate that subsidiary listings following carve-outs harm the interests of the minority shareholders. On the contrary, subsidiary listings following carve-outs may benefit the minority shareholders by reducing financing costs in a hot IPO market. Contrary to the recent criticisms against the IPO of LG Energy Solutions, our findings show that the IPO may have increased the cash flow rights of minority shareholders in LG Chemical.

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ESG investing has gained significant traction among institutional investors worldwide. For example, large asset owners such as National Pension Service, CPP Investments, and CalPERS are considering ESG factors in their investment decisions, and this trend is expanding to other institutional investors. In fact, according to Morningstar, ESG fund inflows reached $1.921 trillion in 2021, bringing the global ESG fund universe to $2.744 trillion at the end of 2021. Therefore, from the perspective of institutional investors and asset managers, the question of ‘how’ to enhance their investment portfolios has become a more important agenda than the question of ‘why’ ESG investing should be made. ESG investing strategies will only be sustainable if they can do what they are supposed to do: generate returns. To improve the performance of ESG investing strategies that invest in companies with high ESG scores, we propose an "ESG Integration" strategy that combines style investing based on market anomalies reported in the academic literature. Our results are summarized as followings. Through ESG Integration, which amalgamates style investing strategies with ESG, such as company size (small-cap) and accruals strategies, we find that greater excess returns can be achieved compared to existing ESG-only strategies. For example, compared to the High ESG-only strategy, the High ESG integrated small-cap style strategy outperforms1.136% per month on average. When we integrate the style based on the accrual anomaly into the ESG, we verify the ESG integration strategy has an excess return of 0.386% per month to the ESG-only strategy. This result pertains to absolute performance and risk-adjusted excess returns, as confirmed using the Carhart (1997) four-factor model. Someone can argue that we could get a loss for ESG scores when we undertake ESG integration than ESG-only strategies. However, we confirm there is a little loss to ESG scores even if we integrate ESG into various style investments. Therefore, by integrating ESG and profitable style strategies based on market anomalies reported by academic literature, investors could enhance the performance of ESG-only strategy without suffering a loss of the very purpose of ESG investing. ESG scores vary a lot by industry's specific characteristics. In Korea, for instance, the banking industry averages the highest ESG score among other industries. Meanwhile, the medical device and service industry shows the lowest ESG score. If we do not consider the industry-specific variations in ESG scores when conducting ESG investments, we could construct a portfolio that is overly tilted to specific industries with high ESG scores on average. Therefore, we employ industry-adjusted ESG scores to construct the ESG Integration strategy. Our result shows that the ESG Integration strategy based on industry-adjusted ESG scores also surpasses the performance of an ESG-only approach. How to handle the risk in their asset management is essential to institutional investors, such as public pension plan sponsors. Even a strategy can deliver enormous profits, but if it is very risky to the level of the risk appetite of institutional investors, investors cannot accept undertaking the strategy. From a risk management standpoint, we present that combining ESG with style strategies results in more favorable risk indicators than pure style strategies. Thus, we confirm that integrating ESG and style strategies can yield superior excess returns over existing ESG-only strategies while mitigating risks compared to conventional style strategies. The direction toward sustainable development through ESG has already garnered agreement and perceived necessity among many international participants. Nonetheless, for companies to sustain their ESG activities, ESG investing in the market must be concurrent. For investors, generating profits through ESG investment is paramount. Presently, consensus on ESG investing predominantly centers around major asset owners like pension funds. However, these pension funds primarily aim to provide pensions to beneficiaries through fund management rather than solely addressing social issues or augmenting societal welfare via ESG investing. Therefore, evaluating whether existing ESG strategies genuinely contribute as investment strategies and how they can be enhanced is pivotal. This study holds significance by proposing practical strategies to boost ESG investment performance, ensuring its sustainability. Furthermore, this research offers empirical evidence that supports not only the social value but also the financial value of ESG investing. Such evidence can be pivotal for future governmental and financial authorities in establishing policies and guidelines related to institutional investors' ESG activities, transcending the social value of ESG investments and encompassing its financial value. Lastly, the integrated strategy to enhance ESG performance, built upon comprehensive information encompassing non-financial ESG factors and financial style strategies, requires a high level of expertise in strategy formulation and execution. Determining how to combine and tailor various strategies, constructing portfolios, rebalancing, monitoring, etc., demands substantial resources, systems, and experience throughout the entire investment process. Institutional investors lacking internal resources may boost investment efficiency and stability by actively leveraging Outsourced Chief Investment Officers (OCIO) such as asset management companies.

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We exploit Japanese mutual fund flows to demonstrate a strong investor demand for dividends in low-interest-rate environments. According to recent studies, investors who seek current income are more likely to invest in dividend-paying assets in such circumstances. These investors often shift their investments from bank deposits to dividend-paying assets, which offer more attractive cash flows despite higher risk. Investors’ such behavior, commonly referred to as "reaching-for-income," has been examined in various studies. Beyond the previous finding that dividend yields drive this "reaching-for-income" behavior, we show that the frequency of dividend payouts also plays an important role in this behavior. Even after controlling for dividend yields and other crucial factors that impact mutual fund flows, funds that pay dividends on a monthly basis receive more significant inflows than funds that pay out dividends less frequently, particularly during periods of economic expansion. Our findings suggest that, in the presence of incomechasing investors, the amounts and frequency of dividends have implications for asset prices.

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This study investigates the impact of a mobile information environment on information asymmetry and investor sentiment among individual investors. To this end, we use a mobile stock trading ratio as a proxy for exposure in the mobile information environment and the Amihud (2002) daily illiquidity ratio, volatility, and difference in net buying dollar volume between individual and institutional investors to measure the degree of information asymmetry. This study also creates an investor sentiment index using the adjusted turnover rate, individual investors’ buy–sell imbalance, and a relative strength index. We find that the mobile information environment significantly decreases individual information asymmetry and investor sentiment. Moreover, the effect in the KOSDAQ market, with high individual investor participation, is more significant than in the KOSPI. The results imply that individual investors may become gradually informed through information processing and cool down the over–heated investor sentiment in the mobile information environment.

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This study utilizes new data across countries on bank supervision for the years 1999–2016 to examine the impact of supervisory power and institutional characteristics of supervision on the key stability measures of the banking sector. Our results reveal that the degree of supervisory power and changes in financial supervisory architecture following the global financial crisis tend to enhance the banking sector stability. This study also finds that central banks’ monopolistic involvement in banking supervision appears to strengthen the banking sector stability and the independence of supervisory authority. However, this effect of monopolistic status of central banks in banking supervision countervails the positive effect of the degree of supervisory power and changes in financial supervisory architecture on the soundness of banking sector. These findings shed light on the significance of bank supervisory power and institutional architecture in ensuring the banking sector stability.

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There has been an ongoing debate on the impact of insidertrading on financial markets. Insiders can easily access inside information and make abnormal profits through this information advantage, consequently decreasing the confidence of investors in financial markets. In contrast to this negative side, insider trading can positively affect financial markets. Since insider trading provides investors with crucial information that is not publicly released about firms’performance or financial policies, insider trading reduces information asymmetry between firms and investors (Ke, Huddart, and Petroni, 2003; Lustgarten and Mande, 1998; Sivakumar and Vijayakumar, 2001; Kim and Choi, 2010; Sohn, Kim, and Goh, 2009). Insider buying (selling) signals that firms are possibly undervalued (overvalued) or may have good (bad) news, suggesting that insider trading benefits financial markets by decreasing information asymmetry. However, this negative relationship between insider trading and information asymmetry is likely to depend on information quality. Because insider trading in firms that disclose transparent information conveys valuable information to financial markets, the positive effect of insider trading on information asymmetry is expected to increase in these firms. In this reasoning, the relationship between insider trading and information asymmetry is likely to depend on the quality of information that firms provide. Meanwhile, a firm’s environmental, social, and governance (ESG) has received a growing attention from both practitioners and academics over the past decade. ESG is regarded as an important factor for firms to improve a good reputation and achieve sustainable survival (Leem, Cheung, and Son, 2019). Existing studies has examined the relationship between ESG and information asymmetry (Cho, Lee, and Pfeiffer, 2013; Kim, Park, and Wier, 2012; Yoon and Lee, 2019). These studies find that information asymmetry between firms and investors tends to decrease in firms with greater EGS because these firms provide markets with trustworthy information, implying that ESG is likely to improve the quality of information that firms disclose. In line with this extant literature, information quality can affect the relationship between insider trading and information asymmetry, but relatively little is known about this research. Thus, we examine how a firm’s ESG affects the relationship between insider trading and information asymmetry. Since the information quality of firms with more ESG is higher than that of firms with less ESG, the positive effect of insider trading on information asymmetry will be pronounced in firms that invest in more ESG. Based on this discussion, we propose the hypothesis that the negative association between insider trading and information asymmetry strengthens in firms with greater ESG. To test our hypothesis, we use data on Korean firms over the 2011-2020 period. Following existing literature (e.g., Lang and Lundholm, 1996; Krishnaswami and Subramaniam, 1999; Drobetz, Grüninger, and Hirschvogl, 2010), we measure information asymmetry using analysts’forecast errors and dispersion. In addition, we measure insider trading as net insider trading, which is the difference between insider buying and selling in a given year. Furthermore, given that our ESG data comprises six ratings, we define firms with A+, A, or B+ of ESG rating as high ESG firms and these with B, C, or D of ESG rating as low ESG firms, respectively. Our final sample includes 3,531 firm-year observations from 2011 to 2020. We find that the negative relationship between insider trading and analysts’ earnings forecast errors and dispersion is stronger in firms that engage in more ESG. Our results suggest that firms’ ESG is likely to improve the transparency and credibility of insider trading’s information, resulting in a greater decrease in information asymmetry. Further, our findings persist after addressing endogeneity issues such as reverse causality and omitted variable bias concerns. Specifically, our results hold when we conduct various robustness tests including regressions with firm fixed effects, change regressions, and System Generalized Method of Moments (GMM) estimations, and alternative measures of analyst forecasts. While previous studies on insider trading have examined a negative relationship between insider trading and information asymmetry, this paper contributes to the corporate finance literature by showing that the association between insider trading and information asymmetry depends on the information quality of insider trading. Moreover, this study adds to the literature on ESG by focusing on how a firm’s ESG affects information asymmetry.

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