Asian Review of Financial Research

pISSN: 1229-0351
eISSN: 2713-6531

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Asian Review of Financial Research / August 2019 Vol. 32 No. 3

Do Business Groups Help Their Affiliated Firms in Their Performance? : Evidence from the Time of High External Capital Market Frictions

Ryoonhee Kim

Asian Review of Financial Research :: Vol.32 No.3 pp.351-381

Abstract
Do Business Groups Help Their Affiliated Firms in Their Performance? : Evidence from the Time of High External Capital Market Frictions ×

This paper studies the benefit of business group affiliation using the unique dataset of firms that are acquired by Korean chaebols in the aftermath of the 1997 Asian financial crisis. To establish the causality that group affiliation causes changes in performance of affiliated firms, the study employs firms that were once nonchaebol, but later acquired by chaebols and became newly affiliated to chaebols. The analyses focuses on the Asian financial crisis that represents high external capital market frictions to bolster the argument for the group affiliation benefit. Panel regressions show that the acquired firms improve performance after acquisitions. Moreover, to address a potential concern that firm-specific characteristics may explain post-acquisition performance of the acquired firms, I match the acquired firms with nonchaebol firms with respect to pre-acquisition characteristics. The matching estimator shows that the new chaebol firms outperform the control firms after chaebol acquisitions. Cross-sectional tests reveal that the affiliation benefit is more pronounced within larger firms and firms with higher ultimate ownership of the controlling families. Finally, the new firms expand market shares and gain stronger pricing power after being group-affiliated, which sheds light on the bright side of group affiliation such as sharing group reputation and internal capital markets.

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Do Business Groups Help Their Affiliated Firms in Their Performance? : Evidence from the Time of High External Capital Market Frictions ×
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An Investigation of Dynamic Price Movements of the Cryptocurrency Coin in Korea

Geesun Lee,Denis Yongmin Joe,Jinho Jeong

Asian Review of Financial Research :: Vol.32 No.3 pp.383-400

Abstract
An Investigation of Dynamic Price Movements of the Cryptocurrency Coin in Korea ×

This paper investigates the dynamic price movements of cryptocurrency market in Korea by employing asymmetric DCC multivariate GARCH and risk decomposition model to reflect the time-varying integration process. We find that the law of one price does not hold between Korean and developed markets like U.S. and Japan, implying that emerging cryptocurrency market can be exploited as a scapegoat of arbitragers. Specifically, the price spreads of 20 to 30 percent between BTC-KRW and BTC-USD persist, exhibiting a sign of economic speculative bubble in Korean cryptocurrency market. Additionally, while there are significant price and volatility spillover effects between cryptocurrency markets of U.S. and Japan, the feedback effects do not exist in the case of Korean market. Our analyses also indicate that the pricing in Korea is mostly based on domestic factors rather than global factors. Finally, we show that this arbitrage opportunity in Korean market has disappeared after a government regulation, which includes banning foreigners and minors from opening new cryptocurrency accounts and prohibiting initial coin offerings (ICOs). The results suggest that a suitable regulation is important to eliminate bubbles.

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Patent Signaling of Startups Can Be Less Effective under Coarse Information

Guangsug Hahn,Joon Yeop Kwon

Asian Review of Financial Research :: Vol.32 No.3 pp.401-417

Abstract
Patent Signaling of Startups Can Be Less Effective under Coarse Information ×

A startup may have little track record and investors may not have the exact information about an entrepreneur's true success probability. To model this, we consider a patent signaling model for startup financing where the entrepreneur signals his type by acquiring patents at his own cost and investors have coarse information about the entrepreneur's true success probability. Rather than having the exact information about each type's true success probability, investors only perceive the ranges of the entrepreneur's possible success probabilities. Adopting perfect Bayesian equilibrium (PBE) as a solution concept, we consider only pure-strategy separating and pooling PBEs of the signaling game between the entrepreneur and investors. By invoking an extension of Cho and Kreps' (1987) Intuitive Criterion adapted to our model, we obtain the unique least-cost perfect Bayesian equilibrium. In the refined equilibrium, as investors consider a higher success probability of each type, it takes more equity share. Furthermore, a high-type entrepreneur may get a smaller equity share despite of acquiring a higher level of patent than in the benchmark where investors know the exact possible success probabilites of the entrepreneur. This implies that coarse information faced by investors may lead to less effective patent-signaling than in the benchmark.

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Can CSR Alone Sufficiently Alleviate Investment Inefficiency? An Evidence from China, Korea and Japan

Abrar Maira,Kook-Hyun Chang

Asian Review of Financial Research :: Vol.32 No.3 pp.419-470

Abstract
Can CSR Alone Sufficiently Alleviate Investment Inefficiency? An Evidence from China, Korea and Japan ×

This study investigates whether corporate social responsibility (CSR) alone sufficiently alleviates the problem of inefficient investment or not? This study considers firms registered on the Shanghai Exchange (China), Korean Exchange (South Korea)and Tokyo Exchange (Japan) for the period 2012 to 2016. Key findings are as follows. First, higher levels of CSR engagement have a positive role in alleviating investment inefficiency. Second, national culture plays a moderating role in the relationship between CSR and investment inefficiency for the entire sample. However, for China, national culture did not play any moderating role (weak culture). Korean national culture displays a partially moderating role (partially strong culture). Japan emerged as the strongest national culture because of the strong moderating role of its national culture. Third, information asymmetry has a mediating role between CSR and inefficient investment by solving the problem of underinvestment. Fourth, agency cost plays a mediating role between CSR engagement and inefficient investment by overcoming the problem of overinvestment. It concludes that CSR engagement alone is not sufficient for alleviating inefficient investment. However, the relationship between CSR and inefficient investment is explained more effectively, through the moderating effect of national culture and the mediating effect of information asymmetry and agency cost.

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The Validity of Measures of Private Information (PIN, AdjPIN, and OWR) : Evidence from M&A Announcements in the KOSPI Market

Jong-Ho Park;Kyong Shik Eom

Asian Review of Financial Research :: Vol.32 No.3 pp.471-511

Abstract
The Validity of Measures of Private Information (PIN, AdjPIN, and OWR) : Evidence from M&A Announcements in the KOSPI Market ×

If we can estimate the level of private information that has flowed into the capital market as a statistic, it can be very useful in many related fields. The first example is the probability of information-based trading (PIN) of Easley and O'Hara (1987). However, the structural model, PIN, has been criticized since the mid 2000s for not reflecting the data characteristics of the stock market, which has been turned into a surge of high frequency trading (HFT). Then, Duarte and Young (2009) proposed a modified PIN model, which extends the PIN model to overcome its shortcomings, and Odders-White and Ready (2008) suggested a model which is based on a fully different theoretical approach. This paper examines the validity of PIN, adjusted PIN (AdjPIN), and Odders-White and Ready (OWR), which have been extensively used as private information measures, in the Korean stock market. Applying them to the information asymmetry situation of the securities market before and after the merger announcement, we verify whether the estimates of these models are appropriate as private information measures. For this, we use the “Conditional Probability of an Information Event (CPIE)” of Duarte, Hu, and Young (2015, 2017). CPIE is estimated by model to enable to judge whether the private information reaches the market on a daily basis. The analyses in this paper include 29 cases of merger disclosures for the targeted companies listed on the KOSPI Market over an eight-and-a-half year period (2007. 5~2015. 10). We employ regression analysis, comparison between CPIE and its expected value, and the CPIE determinants analysis using the TAQ data for a total of 340 trading days before and after each event. As a result, only the OWR model among the three models appears to be useful as a measure of private information in the Korean securities market. Although there are differences in detail, this is essentially the same result as the US stock market. It suggests that in the Korea stock market, the OWR model based on orderflow imbalance, and day and over-night returns, is more appropriate as a measure of private information, rather than the PIN / AdjPIN model. The more detailed results are as follows. First, as a result of CPIE determinants analysis, the PIN-model-based CPIE is affected mostly by trade turnover and somewhat by order imbalance, while the AdjPIN-model-based CPIE is affected by trade turnover. Accordingly, the PIN/AdjPIN models are affected mainly by trade turnover, rather than order imbalance, on which they are theoretically based. On the other hand, most of the explanatory power of the OWR-model-based CPIE comes from over-night and intraday returns. The OWR-model-based CPIE reflects information consistent with its theoretical rationale, although it contrasts somewhat with the U.S. stock market, which is much more affected by either overnight return (in regression analysis) or intra-day return (in the comparison analysis between CPIE and its predicted value). Second, the PIN-/AdjPINmodel- based CPIEs are estimated at the boundary values 0 or 1 at least 81% of the time due to numerical overflow problems in the parameter estimation. This makes PIN or AdjPIN measurements more difficult to trust, even if the models are valid. Third, in all three models, the CPIE persists for up to 5~6 trading days after the announcement of the merger. However, after the announcement, the pattern shows a gradual decline to a lower level than before the announcement. Also, in all three models, the CPIE peaks one day after the announcement, rather than on the day of the announcement. This reflects a degree of inefficiency in the Korean stock market. Altogether, these results suggest that, among the PIN, AdjPIN, and OWR models, the OWR model best reflects the private information flow in the Korean stock market. In other words, they suggest that the OWR model based on order flow imbalance, over-night return, and intraday return, rather than the PIN/AjdPIN models based on order flow imbalance, is more appropriate as a measure of private information. The results on the Korean stock market are essentially the same as those of the U.S. stock market, though there are differences in detail, such as the relative importance of overnight and intraday returns.

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