• Korean small business review
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• v.31 no.2
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• pp.85-102
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• 2009

With the continued globalization of world markets, transfer pricing has become one of the dominant sources of controversy in international taxation. Transfer pricing is the process by which a multinational corporation calculates a price for goods and services that are transferred to affiliated entities. Consider a Korean electronic enterprise that buys supplies from its own subsidiary located in China. How much the Korean parent company pays its subsidiary will determine how much profit the Chinese unit reports in local taxes. If the parent company pays above normal market prices, it may appear to have a poor profit, even if the group as a whole shows a respectable profit margin. In this way, transfer prices impact the taxable income reported in each country in which the multinational enterprise operates. It's importance lies in that around 60% of international trade involves transactions between two related parts of multinationals, according to the OECD. Multinational enterprises (hereafter MEs) exert much effort into utilizing organizational advantages to make global investments. MEs wish to minimize their tax burden. So MEs spend a fortune on economists and accountants to justify transfer prices that suit their tax needs. On the contrary, local governments are not prepared to cope with MEs' powerful financial instruments. Tax authorities in each country wish to ensure that the tax base of any ME is divided fairly. Thus, both tax authorities and MEs have a vested interest in the way in which a transfer price is determined, and this is why MEs' international transfer prices are at the center of disputes concerned with taxation. Transfer pricing issues and practices are sometimes difficult to control for regulators because the tax administration does not have enough staffs with the knowledge and resources necessary to understand them. The authors examine transfer pricing practices to provide relevant resources useful in designing tax incentives and regulation schemes for policy makers. This study focuses on identifying the relevant business and environmental factors that could influence the international transfer pricing of MEs. In this perspective, we empirically investigate how the management perception of related variables influences their choice of international transfer pricing methods. We believe that this research is particularly useful in the design of tax policy. Because it can concentrate on a few selected factors in consideration of the limited budget of the tax administration with assistance of this research. Data is composed of questionnaire responses from foreign firms in Korea with investment balances exceeding one million dollars in the end of 2004. We mailed questionnaires to 861 managers in charge of the accounting departments of each company, resulting in 121 valid responses. Seventy six percent of the sample firms are classified as small and medium sized enterprises with assets below 100 billion Korean won. Reviewing transfer pricing methods, cost-based transfer pricing is most popular showing that 60 firms have adopted it. The market-based method is used by 31 firms, and 13 firms have reported the resale-pricing method. Regarding the nationalities of foreign investors, the Japanese and the Americans constitute most of the sample. Logistic regressions have been performed for statistical analysis. The dependent variable is binary in that whether the method of international transfer pricing is a market-based method or a cost-based method. This type of binary classification is founded on the belief that the market-based method is evaluated as the relatively objective way of pricing compared with the cost-based methods. Cost-based pricing is assumed to give mangers flexibility in transfer pricing decisions. Therefore, local regulatory agencies are thought to prefer market-based pricing over cost-based pricing. Independent variables are composed of eight factors such as corporate tax rate, tariffs, relations with local tax authorities, tax audit, equity ratios of local investors, volume of internal trade, sales volume, and product life cycle. The first four variables are included in the model because taxation lies in the center of transfer pricing disputes. So identifying the impact of these variables in Korean business environments is much needed. Equity ratio is included to represent the interest of local partners. Volume of internal trade was sometimes employed in previous research to check the pricing behavior of managers, so we have followed these footsteps in this paper. Product life cycle is used as a surrogate of competition in local markets. Control variables are firm size and nationality of foreign investors. Firm size is controlled using dummy variables in that whether or not the specific firm is small and medium sized. This is because some researchers report that big firms show different behaviors compared with small and medium sized firms in transfer pricing. The other control variable is also expressed in dummy variable showing if the entrepreneur is the American or not. That's because some prior studies conclude that the American management style is different in that they limit branch manger's freedom of decision. Reviewing the statistical results, we have found that managers prefer the cost-based method over the market-based method as the importance of corporate taxes and tariffs increase. This result means that managers need flexibility to lessen the tax burden when they feel taxes are important. They also prefer the cost-based method as the product life cycle matures, which means that they support subsidiaries in local market competition using cost-based transfer pricing. On the contrary, as the relationship with local tax authorities becomes more important, managers prefer the market-based method. That is because market-based pricing is a better way to maintain good relations with the tax officials. Other variables like tax audit, volume of internal transactions, sales volume, and local equity ratio have shown only insignificant influence. Additionally, we have replaced two tax variables(corporate taxes and tariffs) with the data showing top marginal tax rate and mean tariff rates of each country, and have performed another regression to find if we could get different results compared with the former one. As a consequence, we have found something different on the part of mean tariffs, that shows only an insignificant influence on the dependent variable. We guess that each company in the sample pays tariffs with a specific rate applied only for one's own company, which could be located far from mean tariff rates. Therefore we have concluded we need a more detailed data that shows the tariffs of each company if we want to check the role of this variable. Considering that the present paper has heavily relied on questionnaires, an effort to build a reliable data base is needed for enhancing the research reliability.

• KDI Journal of Economic Policy
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• v.31 no.1
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• pp.71-103
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• 2009

Considering the expenditure size of public institutions centering on public enterprises, about 28% of Korea's GDP in 2007, public institutions have significant influence on the Korean economy. However, still in the new government, there are voices of criticism about the need of constant reform on public enterprises due to their irresponsible management impeding national competitiveness. Especially, political controversy over appointment of executives such as CEOs of public enterprises has caused the distrust of the people. As one of various reform measures for public enterprises, this study analyzes the effect of internal governance structure of public enterprises on their managerial performance, since, regardless of privatization of public enterprises, improving the governance structure of public enterprises is a matter of great importance. There are only a few prior researches focusing on the governance structure and managerial performance of public enterprises compared to those of private enterprises. Most of prior researches studied the relationship between parachuting employment of CEO and managerial performance, and concluded that parachuting produces negative effect on managerial performance. However, different from the results of such researches, recent studies suggest that there is no relationship between employment type of CEOs and managerial performance in public enterprises. This study is distinguished from prior researches in view of following. First, prior researches focused on the relationship between employment type of public enterprises' CEOs and managerial performance. However, in addition to this, this study analyzes the relationship of internal auditors and managerial performance. Second, unlike prior researches studying the relationship between employment type of public corporations' CEOs and managerial performance with an emphasis on parachuting employment, this study researches impact of employment type as well as expertise of CEOs and internal auditors on managerial performance. Third, prior researchers mainly used non-financial indicators from various samples. However, this study eliminated subjectivity of researchers by analyzing public enterprises designated by the government and their financial statements, which were externally audited and inspected. In this study, regression analysis is applied in analyzing the relationship of independence and expertise of public enterprises' CEOs and internal auditors and managerial performance in the same year. Financial information from 2003 to 2007 of 24 public enterprises, which are designated by the government, and their personnel information from the board of directors are used as samples. Independence of CEOs is identified by dividing CEOs into persons from the same public enterprise and persons from other organization, and independence of internal auditors is determined by classifying them into two groups, people from academic field, economic world, and civic groups, and people from political community, government ministries, and military. Also, expertise of CEOs and internal auditors is divided into business expertise and financial expertise. As control variables, this study applied foundation year, asset size, government subsidies as a proportion to corporate earnings, and dummy variables by year. Analysis showed that there is significantly positive relationship between independence and financial expertise of internal auditors and managerial performance. In addition, although business expertise and financial expertise of CEOs were not statistically significant, they have positive relationship with managerial performance. However, unlike a general idea, independence of CEOs is not statistically significant, but it is negatively related to managerial performance. Contrary to general concerns, it seems that the impact of independence of public enterprises' CEOs on managerial performance has slightly decreased. Instead, it explains that expertise of public enterprises' CEOs and internal auditors plays more important role in managerial performance rather than their independence. Meanwhile, there are limitations in this study as follows. First, in contrast to private enterprises, public enterprises simultaneously pursue publicness and entrepreneurship. However, this study focuses on entrepreneurship, excluding considerations on publicness of public enterprises. Second, public enterprises in this study are limited to those in the central government. Accordingly, it should be carefully considered when the result of this study is applied to public enterprises in local governments. Finally, this study excludes factors related to transparency and democracy issues which are raised in appointment process of executives of public enterprises, as it may cause the issue of subjectivity of researchers.

• Journal of the Korea Academia-Industrial cooperation Society
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• v.19 no.2
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• pp.125-136
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• 2018

Heavy snowfall disasters are the third most serious natural disasters, after typhoon and heavy rainfall disasters, in terms of economic disaster damage in South Korea. The average annual economic damage of heavy snowfall disasters was approximately eighty-eight billion won during the period of 2005-2014. In spite of significant economic damage, there have been few economic studies regarding heavy snowfall disasters in South Korea. The objective of this research is to identify the association between economic damage of heavy snowfall disasters and damage effect factors of snowfall amounts, snowfall days, population densities, and non-urban area ratios using a regression analysis model. Economic damage data sets of heavy snowfall disasters during the period of 2005-2014 were obtained from the Natural Disaster Yearbook published by the Ministry of Public Safety and Security. Weather-related data sets, such as snowfall amounts and snowfall days were collected from the Korea Meteorological Administration. Demographic and urban data sets, including population densities and non-urban area ratios, were provided by the Local Government Yearbook. Outcomes of this study can assist with heavy snowfall disaster management policies of South Korea.

• The Korean Journal of Financial Management
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• v.23 no.1
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• pp.49-67
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• 2006

This study examines whether won/dollar futures have price discovery function and volatility spillover effect or not, using intraday won/dollar futures prices, volumes, and spot rates for the interval from March 2, 2005 through May 30, 2005. Futures prices and spot rates are non-stationary, but there is the cointegration relationship between two time series. Futures returns, spot returns, and volumes are stationary. Asymmetric effects on volatility in futures returns and spot returns does not exist. Analytical results of mean equations of the BGARCH-EC (bivariate GARCH-error correction) model show that the increase of futures returns raise spot returns after 5 minutes, which implies that futures returns lead spot returns and won/dollar futures have price discovery function. In addition, the long-run equilibrium relationship between the two returns could help forecast spot returns. Analytical results of variance equations indicate that short-run innovations in the futures market positively affect the conditional variances of spot returns, that is, there is the volatility spillover effect in the won/dollar futures market. A dummy variable of volumes does not have an effect on two returns but influences significantly on two conditional variances.

• Environmental and Resource Economics Review
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• v.21 no.1
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• pp.93-127
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• 2012

We estimate how much KEPCO can save their loss and how much social welfare can be increased by applying the real-time pricing instead of current regulated retail price in the electricity market in order to analyze the problem of the regulated retail price which is fixed below the marginal cost. We estimate the demand functions of peak time and off-peak time in summer (June to August) and winter (December to February). We construct the supply function based on hourly step-wise linear marginal cost functions, too. We find that the increase of social welfare will be 67 billion won in summer if the fixed retail price is changed into the real-time pricing scheme. The total 705 billion won will be transferred from consumer surplus to producer surplus and the rest (67 billion won) will be saved from the reduction of deadweight loss among KEPCO's loss. In winter, the increase of social surplus will be 225 billion won and 1,174 billion won of KEPCO's loss will be transferred from consumer surplus. As a result, we conclude that the regulation of the retail price in the electricity market induces the social welfare loss and KEPCO suffers a huge loss.

• Journal of the Korea Organic Resources Recycling Association
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• v.3 no.2
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• pp.79-89
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• 1995

Changes of microbial activity and physicochemical environment during composting of papermill sludge(PMS) in the pilot plant equipped with an agitated bed reactor were monitored for establishing the efficient composting system. Microbial activity determined as the evolution of $CO_2$ increased for the first 10 days after introduction of PMS to the reactor and decreased thereafter. Population changes of microorganisms in the reactor-PMS were not typical as in windrow system. The ratio of thermophilic bacteria to mesophilic bacteria, however, increased slowly even 23 days after introduction. Temperature of PMS increased rapidly from the first day and reached $62^{\circ}C$ at 7 days after introduction and decreased slowly thereafter. The acidity of PMS was pH 6.8 initially, increased to pH 8.0 after 7 days and decreased to pH 7.4 after 23 days. Redox potential(Eh) of PMS was -320mV at the beginning of composting, but it was increased with time to reach -15mV after 23 days composting. However, Eh of PMS pre-sterilized before measurement was average 50mV, regardless of composting periods indicating the major role of microorganisms during composting process. Water content of PMS was 67% initially and decreased to about 50% after 23 days composting in the reactor. Less than 13 days-old compost inhibited growth of radish in the container mixture with bed soil. Based on statistical analysis of microbial and physicochemical parameters of PMS during composting, an equation was developed for determining compost maturity. A number of experiments using various organic wastes are required before application of the formular to the practical use.

• Journal of the Korea Organic Resources Recycling Association
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• v.2 no.2
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• pp.19-29
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• 1994

A large volume of paper mill sludge(PMS) is produced every day from paper industries after treatments of waste water and it costs too much to dispose of the sludge. Since PMS consists mostly of biodegradable organic matter, cellulose, it is desirable to recycle it by proper treatments such as composting. In this study, experiments were conducted using a small scale reactor(12l) to establish optimum conditions for efficient composting of PMS of which initial pH, C/N ratio, and moisture content were 7.1, 28~30, and 60~65%, respectively. No heavy metals such as mercury, cadmimum, and lead were not detected in the PMS. Various levels of forced aeration, 1 minute aeration per every 30, 60, 120, 240, and 480 minutes were applied and 1 minute aeration per 60 and 120 minutes found to be proper for composting of 8l PMS in this system. Relationship between $CO_2$ production and temperatures was positively correlated with r> 0.82 suggesting that the normal decomposition of PMS by microorganisms occurred. However, under the condition of aeration interval over than 240 minutes, a negative relationship between two parameters was found indicating the occurrence of abnormal(maybe anaerobic) degradation. The amount of added nitrogen also affected composting of PMS resulting in the increase of $CO_2$ production and temperature. Semi-field tests using 100kg PMS in a static pile sysem showed that PMS could be composted efficiently under optimal environmental conditions. The parameters determining efficiency of composting such as C/N ratio, aeration, moisture content, and pH need to be monitored.

• Journal of Soil and Groundwater Environment
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• v.12 no.4
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• pp.1-7
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• 2007

Slug/bail tests were conducted in sand layer (sbt-1 well), silty sand layer (sbt-2 well), and mixed sand and silty sand layer (sbt-3 well). Hydraulic conductivity and specific storage coefficient were estimated through slug/bail tests. Pore volumes of groundwater level drawdown zone for bail test were estimated by using hydraulic conductivity and specific storage coefficient. KGS model was most suitable interpretation method of slug/bail tests. Average hydraulic conductivity for slug/bail tests were estimated to be $6.65{\times}10^{-5}$ m/sec in sbt-1 well, $6.33{\times}10^{-6}$ m/sec in sbt-2 well, and $3.72{\times}10^{-5}$ m/sec in sbt-3 well. Average specific storage coefficient for slug/bail tests were estimated to be 0.0225 in sbt-1 well, 0.0177 in sbt-2 well, and 0.0259 in sbt-3 well. Dimensionless time and dimensionless wellbore storage were estimated by use of transmissivity, storativity, test time, and specification of test wells. And, dimensionless drawdown were selected by parameter ${\alpha}\;and\;{\beta}$ parameter from Cooper et al. (1967). Radius of influence were estimated by estimated dimensionless time, dimensionless wellbore storage, and dimensionless drawdown. The average radius of influnce for slug/bail tests were estimated to be 1.377 m in sbt-1 well, 1.253 m in sbt-2 well, and 1.558 m in sbt-3 well. Pore volume at groundwater level drawdown zone by dummy withdrawal for bail tests were estimated to be $145,636cm^3$ in sbt-1 well, $71,561cm^3$ in sbt-2 well, and $100,418cm^3$ in sbt-3 well. Pore volume excepted well volume at groundwater level drawdown zone by dummy withdrawal for bail tests were estimated to be $145,410cm^3$ in sbt-1 well, $71,353cm^3$ in sbt-2 well, and $100,192cm^3$ in sbt-3 well.