• KDI Journal of Economic Policy
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• v.12 no.2
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• pp.95-120
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• 1990

The underpricing of new shares of a firm that are offered to the public for the first time (initial offerings) is well known and has puzzled financial economists for a long time since it seems at odds with the optimal behavior of the owners of issuing firms. Past attempts by financial economists to explain this phenomenon have not been successful in the sense that the explanations given by them are either inconsistent with the equilibrium theory or implausible. Approaches by such authors as Welch or Allen and Faulhaber are no exceptions. In this paper, we develop a signalling model of capital investment to explain the underpricing phenomenon and also analyze the efficiency of investment. The model focuses on the information asymmetry between the owners of issuing firms and general investors. We consider a firm that has been owned and operated by a single owner and that has a profitable project but has no capital to develop it. The profit from the project depends on the capital invested in the project as well as a profitability parameter. The model also assumes that the financial market is represented by a single investor who maximizes the expected wealth. The owner has superior information as to the value of the firm to investors in the sense that it knows the true value of the parameter while investors have only a probability distribution about the parameter. The owner offers the representative investor a fraction of the ownership of the firm in return for a certain amount of investment in the firm. This offer condition is equivalent to the usual offer condition consisting of the number of issues to sell and the unit price of a share. Thus, the model is a signalling game. Using Kreps' criterion as the solution concept, we obtained an essentially unique separating equilibrium offer condition. Analysis of this separating equilibrium shows that the owner of the firm with high profitability chooses an offer condition that raises an amount of capital that is short of the amount that maximizes the potential profit from the project. It also reveals that the fraction of the ownership of the firm that the representative investor receives from the owner of the highly profitable firm in return for its investment has a value that exceeds the investment. In other words, the initial offering in the model is underpriced when the profitability of the firm is high. The source of underpricing and underinvestment is the signalling activity by the owner of the highly profitable firm who attempts to convince investors that his firm has a highly profitable project by choosing an offer condition that cannot be imitated by the owner of a firm with low profitability. Thus, we obtained two main results. First, underpricing is a result of a signalling activity by the owner of a firm with high profitability when there exists information asymmetry between the owner of the issuing firm and investors. Second, such information asymmetry also leads to underinvestment in a highly profitable project. Those results clearly show the underpricing entails underinvestment and that information asymmetry leads to a social cost as well as a private cost. The above results are quite general in the sense that they are based upon a neoclassical profit function and full rationality of economic agents. We believe that the results of this paper can be used as a basis for further research on the capital investment process. For instance, one can view the results of this paper as a subgame equilibrium in a larger game in which a firm chooses among diverse ways to raise capital. In addition, the method used in this paper can be used in analyzing a wide range of problems arising from information asymmetry that the Korean financial market faces.

• The Journal of Information Systems
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• v.29 no.3
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• pp.119-144
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• 2020

Purpose Real estate usually takes charge of the highest proportion of physical properties which individual, organizations, and government hold and instability of real estate market affects the economic condition seriously for each economic subject. Consequently, practices for predicting the real estate market have attention for various reasons, such as financial investment, administrative convenience, and wealth management. Additionally, development of machine learning algorithms and computing hardware enhances the expectation for more precise and useful prediction models in real estate market. Design/methodology/approach In response to the demand, this paper aims to provide a framework for forecasting the real estate market with machine learning algorithms. The framework consists of demonstrating the prediction efficiency of each machine learning algorithm, interpreting the interior feature effects of prediction model with a state-of-art algorithm, LIME(Local Interpretable Model-agnostic Explanation), and comparing the results in different cities. Findings This research could not only enhance the academic base for information system and real estate fields, but also resolve information asymmetry on real estate market among economic subjects. This research revealed that macroeconomic indicators, real estate-related indicators, and Google Trends search indexes can predict real-estate prices quite well.

• The Korean Journal of Community Living Science
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• v.26 no.1
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• pp.75-85
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• 2015

This study investigates the impact of livestock diseases, including FMD(foot-and-mouth disease) and MCD(mad-cow disease), on pork demand in Korea. TV news stories about the livestock diseases were considered as negative advertising, and therefore the carry-over effect of negative advertising was combined with the pork demand model in conjunction with an exponential distributed lag function. The asymmetry hypothesis was imposed, however it was accepted that demand response does not show different sensitivities to increases and decreases in the livestock disease news. FMD news had a negative effect on pork demand, whereas MCD news had a positive effect, yet FMD news had a greater effect on pork demand than MCD news. The pork demand elasticity estimates for FMD and MCD news were -0.0071 and 0.0028, respectively. The cross-elasticity of the imported beef price to pork demand was highly inelastic, but it was elastic during the beef import embargo.

• Information Systems Review
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• v.3 no.2
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• pp.349-368
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• 2001

The purpose of this research is to investigate economic factors that determine characteristics of B2B e-Marketplaces. From a previous research work, we classify B2B e-Marketplaces into four forms: MRO Hubs, Catalogue Hubs, Yield Managers, and Exchanges. This classification is based upon "What businesses buy" and "How businesses buy." In an attempt to identify economic factors that determine e-Marketplace forms, we employ three economic factors: buyer/seller relationships, features of products traded, and characteristics of industries or markets. Through extensive literature reviews, we have selected six variables which can be used to explain reasons for different e-Marketplace forms: asset specificity and information asymmetry for the buyer/seller relationship, standardization and price variability for the product features, entry barrier and market volatility for the market characteristics. This research conducts six in-depth case studies to explain that "Why different forms of e-Marketplace emerge?" The research framework intends to provide link between e-Marketplace forms and six economic variables. Six case studies are based on interviews with CEO or team managers of e-Marketplace firms. This study has found six economic variables, explaining well reasons for different e-Marketplace forms. Research findings are summarized as propositions so that survey-type research can be conducted with a large number of samples in the future.

• Health Policy and Management
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• v.6 no.2
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• pp.14-42
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• 1996

On rationale for government intervention is the failure of competition in the market. Health care markets are characterized by such unique aspects as information asymmetry, prevalence of insurance, and cost-increasing competition based on the adoption of costly medical technology. Therefore, government policy to guarantee a sufficient number of providers in markets may not lead to socially beneficisal outcomes such as higher quantity and lower price. This paper examines the unique nature of health services and its implications for competition, the evidence that competition may not reduce health care ex[enditures, and policy tools that government can use to encourage competition which contributes to supporting a sustainable health care system.

• Communications for Statistical Applications and Methods
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• v.23 no.3
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• pp.203-213
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• 2016

We investigate volatility spillover aspects of realized volatilities (RVs) for the log returns of the Korea Composite Stock Price Index (KOSPI) and the Hang Seng Index (HSI) from 2009-2013. For all RVs, significant long memories and asymmetries are identified. For a model selection, we consider three commonly used time series models as well as three models that incorporate long memory and asymmetry. Taking into account of goodness-of-fit and forecasting ability, Leverage heteroskedastic autoregressive realized volatility (LHAR) model is selected for the given data. The LHAR model finds significant decompositions of the spillover effect from the HSI to the KOSPI into moderate negative daily spillover, positive weekly spillover and positive monthly spillover, and from the KOSPI to the HSI into substantial negative weekly spillover and positive monthly spillover. An interesting result from the analysis is that the daily volatility spillover from the HSI to the KOSPI is significant versus the insignificant daily volatility spillover of the KOSPI to HSI. The daily volatility in Hong Kong affects next day volatility in Korea but the daily volatility in Korea does not affect next day volatility in Hong Kong.

• Asia-Pacific Journal of Business
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• v.10 no.4
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• pp.1-30
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• 2019

The involuntary delisting of public companies has a detrimental effect on economies caused by the loss of stock value and confidence in the capital market. Previous studies have focused on prediction or prevention models for firm delisting events using various financial and accounting information. However, the timely disclosure of companies, another important indicator, has not been investigated before in connection with companies that have been delisted. To address this gap, this study investigates the timely disclosure behavior of companies prior to delisting using sample firms listed on the Korean stock market between 2000 and 2014. The results show a significant correlation between the frequency of timely disclosure and delisted firms prior to their delisting on the Korean stock market. The delisted companies appear to increase their timely disclosure to deliver specific information to the public. Furthermore, these companies are likely to increase the frequency of timely disclosure as they get closer to their delisting. Notably, the timely disclosure of delisted firms has a capital market effect; namely, timely disclosure increases trading volume while decreasing the market value of the shares, reflecting price efficiency. This study appears to be the first that considers timely disclosure in the involuntary delisting literature.

• The Journal of Fisheries Business Administration
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• v.54 no.4
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• pp.47-64
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• 2023

The development potential of the aquaculture industry is very high, but there is no financial support for investment except for the government, policy funds, fishery funds, etc. Therefore, we would like to propose a contract transaction in the aquaculture industry. This refers to a forward contract between a producer (fish farmer) and a buyer (mainly a processor or marketer) that stipulates the production and supply of fish products at a predetermined price, but it also refers to an "equity participation type" contract in which both producers and buyers can participate. In other words, it is a model in which part of the fish farm is produced in a way that meets the conditions of the buyer, and part is produced by the producer. This study aims to establish the basic contract trading process. It provides an academic approach to prevent adverse selection and moral hazard due to information asymmetry. It also provides an idea to converge the aquaculture industry with the financial industry using Pecking Order theory. By doing so, we have made it possible for venture capitalists to invest with confidence and provided a process for investors to resolve their concerns, paving the way for the aquaculture industry and the financial industry to develop together.

• KDI Journal of Economic Policy
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• v.13 no.1
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• pp.3-33
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• 1991

Since the early 1980's, the Korean government has gradually been widening the Korean market to foreign consumer goods. This, combined with the increased purchasing power of the Korean consumers resulting from the continued economic growth of the country, has sparked a spectacular influx of foreign consumer goods into Korea, ranging from BMW's to chopsticks. Import of foreign consumer goods amounted to more than 6 billion dollars in 1989 and is continuing to grow at a rapid rate. The increased import of foreign consumer goods doubtlessly improved the overall welfare of the Korean consumers by providing them with a wider range of options to choose from, by lowering the prices of some of the consumer goods domestically produced, and also by forcing the producers of some Korean goods to face competition with better foreign goods, thus giving them an incentive to raise the quality of their products. However, it is agreed by most economists that this increase in general welfare has been much smaller than what they had expected at the outset. Consumer prices of most imported consumer goods are easily double the import price, and in some cases, more than treble the import prices. Further, there has not been a noticeable drop in the prices of domestically produced consumer goods. Much of the blame has been attributed to the distribution sector of Korea. The objective of this paper is to analyze the imported consumer goods distribution sector of Korea, focusing on the possible sources of the poor performance of that sector, and to make policy suggestions that could potentially increase the welfare. This paper differs from all the previous research by others on this subject in that it analyzes the imported consumer goods distribution sector of Korea as a vertical structure. The distribution sector of an imported consumer good is a vertical structure since it consists of an international market, an import stage, and domestic wholesale and retail markets, in that order vertically. Our study naturally includes the analysis of the vertical restraints as well as the analysis of the industrial organization of each horizontal stage in the vertical structure. Each horizontal component of the imported consumer goods distribution sector is basically a monopolistically competitive market differentiated by characteristics of goods and by the locations and the services of firms. Further, restrictive dealership and resale price maintenance are found to be widely in use. Our main findings are the follwing; First, most consumer goods are imported monopolistically or oligopolistically through restrictive dealership contracts between foreign producers and domestic importers. Such restrictive dealership gives importers market power in the domestic market and explains many of the large discrepancies betwen the consumer prices and the import prices of many goods. Korean anti - trust law does not cover the issues arising from the market power of an importer resulting from a restrictive dealership contract. Second, some major producers of Korean goods are also importers of foreign goods that are substitutes of their products. The import of substitutes by major domestic producers is anti - competitive because it tends to raise the prices of both domestic goods and foreign goods, and also because it reduces the incentive of the domestic producers to raise the quality of their products. Third, wholesalers and retailers widely use resale price maintenance as a price fixing mechanism, and while this is against the anti- trust law, it seldom gets noticed. Fourth, the high level of rents of real estate for commercial use works as an entry barrier to the distribution sector and results in reduced competition by the firms in that sector. Finally, there are information problems. Consumers have inferior information to firms about the quality of a foreign consumer good that they have not tried before. Such information asymmetry often enables firms to raise prices. In addition, information asymmetry between importers frequently delays the import of cheaper substitutes. In order to alleviate the problems indentified above, we suggest the following policy changes. The government should strengthen the anti - trust law and its enforcement to regulate restrictive import contracts, import of competing goods by major domestic producers, and RPM by wholesalers and retailers that is aimed at price fixing. In addition, the government should loosen its tight real estate policy to encourage investment in the distribution sector. Finally, we suggest that the import price revelation policy that has been in use for some items since 1990 be expanded to most imported consumer goods that are introduced for the first time to give consumer better information and be used only for the period of time needed to inform sufficient number of consumers.

• The Korean Journal of Financial Management
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• v.25 no.3
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• pp.79-109
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• 2008

According to asymmetric information hypothesis (for example, Ross (1977), Myers and Majluf (1984)), the impact of seasoned equity offering (SEO) announcement on the stock price depends mainly on the informational market efficiency. Despite of the importance of this fact, most of the previous SEO-related studies have done under the assumption of equal informational market efficiency among sample firms. This study intends to solve this problematic assumption and explores the real impact of SEO announcement on the stock prices. For this purpose, we divide 122 SEO firms into two subgroups; one with firms from KOSPI200 and the other including firms from the rest of KOSPI, assuming the former is more informationally efficient than the latter. Different from the US market-based study demonstrating short-and long-term negative price impacts of SEO announcement, most of the Korean market-based ones show price increases up until the announcement and decreases just after the announcement and in the long run. These previous studies attribute this difference to the different market system and regulation between them. Our results indicate that this discrepancy can be attributed to the different degree of market efficiency as well as the different market system and regulation.