We investigate a unique period of at least six months and one day, at the beginning of which a group of American companies cancel their employee stock options that are voluntarily tendered in return for replacement options to be granted at the end of the period (the stock option exchange program). As the exercise price of the replacement options is determined by the stock price on the re-grant date, a decrease in the stock price during the period benefits participating employees. We examine the hypothesis that management, when its options are tendered in exchange for replacement options, manipulates the stock price during the period to have a lower exercise price for the replacement options. We find some evidence supportive of this hypothesis. Furthermore, participation of management in the exchange program appears to be costly to shareholders who have to sell before the end of the period.

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We examined a sample of 264 acquisitions by firms listed in KRX (Korea Exchange) from 1998 to 2005. We found the size effect in acquisition announcem ent returns, which is consistent with the study of Moeler, Schlingemann, and Stulz (2004). The announcement abnormal return for small acquirers averages 6.53% compared to 4.84% of large a cquirers. After finding that small firms are better acquirers than large firms, we examined possible explanations for the size effect as folows; First, we investig ated that the small firms' gains might be from the economies of s cales. Second, poor performance may lead to prudent decisions. Third, managements with large free cash flows would make poor acquisitions rather than increase payouts to shareholders. Fourth, firms make acqui sitions when they exhaust their growth oportunities. For these hypotheses to explain the size effect, we test whethe r or not small and large acquirers have different characteristics. The size effect is robust to firm, and it will not

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We test the Credit Ratings-Capital Structure Hypothesis (CR-CS) that credit ratings afect capital structure decisions of firms, using 695 firms listed on the Korea Stock Exchange. We also examine whether CR-CS is efective in the empirical models of the tradeof capital structure theory. Korea underwent structural changes since the currency crisis of 197. Our sample period is divided into the pre-crisis term of 1995 to 19 97 and the post-crisis term of 1998 to 2005. Our empiric al results are as follows.First, the CR-CS is not supported in the former term but suppor ted in the latter term. Second, while the variable turns out to be not significant, the variable has a significantly negative efect on the debt ratio, reflecti ng an upward bias in the Korean ratings. Third, variables of credit ratings are also significan tly negative in the tradeoff models.

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This study examines the valuation effect of across-firm diversification as well as within-firm diversification using data of Korean firms listed on KRX during the period over 1994~2003. Although many Korean firms diversify their business through the ownership of other firms, current literature has paid little attention to the valuation effect of across-firm diversification. This study, by considering ownership relations across firms, attempts to examine the valuation effect of across-firm and within-firm diversification. Specifically, the degree of related and unrelated diversification is separatedly measured, employing the Caves' method. The sample period is divided into pre-crisis, crisis, and post-crisis periods in order to reflect the impact of financial crisis in late 1990's. Our results show that the negative valuation effect of within-firm diversification presented by prior studies hold only for unrelated diversification and for pre-crisis period. The valuation effect of within-firm diversification have disappeared since crisis period. However, although there were no valuation effect during pre-crisis and crisis period, across-firm diversification have a significant negative effect on firm value for both related and unrelated diversification during post-crisis period. These results indicate that corporate restructuring enforced and regulations and systems established following financial crisis have a significant impact on corporate strategy and market perception of diversification activities.

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‘Build-Transfer-Operate(BTO)', one variation of project financing, has been widely used to finance the infrastructure projects. To induce private participation in the infrastructure projects with low (or even negative) rate of returns, BTO arrangements were supplemented with ‘minimum rate of return guarantee' by the government. This ‘BTO with minimum rate of return guarantee' caused much economic inefficiencies-overestimation of the demands and resulting waste of tax money-due to the perverse incentives inherent in the arrangements. This paper analyzes the BTO arrangement using simple economic models and suggests some measures to mitigates the inefficiencies.

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