• The Korean Journal of Financial Management
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• v.25 no.3
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• pp.33-78
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• 2008

This paper empirically examines whether firms engage in a dynamic adjustment process toward target capital structure and, whether there is a target capital structure or mean reverting using the partial adjustment model while allowing for costly adjustment. Also we investigate the empirical determinants of optimal target capital structure in long term equilibrium. As a result, our empirical model captures at least several important features of capital structure behavior for Korean listed firms. First, Korean firms pursue target capital structure and also there is mean reverting phenomenon. Second, Non-Chaebol and small firm in adjustment speed is faster than Chaebol and large firm. Third, even capital market restricts the adjustment speed interestingly. Fourth, Korean firms have target behavior according to a degree of observed gap. Fifth, Korean firms close about one-fourth of the gap between their actual and target debt ratios within one year and thence targeting behavior explains far more of the observed changes in capital structure than market timing or pecking order considerations. Sixth, capital market is significant in determining optimal capital structure.

• The Journal of Asian Finance, Economics and Business
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• v.6 no.3
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• pp.91-101
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• 2019

This paper finds some stylized facts about executive pay in South Korea. Using aggregate data of the listed companies since 2002, we find that 1) the director's remuneration has risen faster than the employee compensation, thus, the pay ratio of executive and employee has escalated from 3.0 to 4.5; 2) the executive compensation for large business group fluctuates more widely than that for small and medium enterprises does, hence the pay ratio for large firms changes widely too; 3) the median pay ratio has not grown monotonically but it rather rises to remain still around year 2011, which is accounted for mostly by small and medium enterprises. New information on executive compensation by compulsory disclosure starting from 2013 made further analysis of CEO compensation attainable. Based on the conventional regression analysis for 2013-2017, we find that 1) the elasticity of CEO pay with respect to firm value is about 0.18; 2) the volatility of stock return is negatively related to CEO pay; 3) contemporaneous stock return is positively associated with the pay; 4) there is insufficient evidence that large business groups pay their CEOs more than small and medium enterprises do. These results are robust under various model specifications.

• East Asian Economic Review
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• v.23 no.4
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• pp.353-379
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• 2019

This paper aims to determine factors causing the stagnation of Korean firms' fixed investment after the global financial crisis, using panel data for the period of 1999-2016. Fixed investment remained sensitive to cash flow and Tobin's q although their effects decreased after the global financial crisis. A decreasing trend of cash flow and an increase in Tobin's q since the early 2000's imply that the worsening cash flow was a major factor behind the sluggish investment after the crisis. Meanwhile, debt-equity ratio remained significant for non-chaebol affiliated firms, reflecting disparity in access to external financing. Volatility of stock returns also became insignificant after the crisis, casting doubt on the argument that uncertainty was a major factor contributing to the decline of fixed investment. Analysis of financial investment confirmed the significant effect of cash flow, larger than that on financial investment than on fixed investment. In particular, debt repayment and other financial investment, except share repurchase, were sensitive to cash flow. However, the substitution of fixed investment by financial investment is a consequence, rather than a cause of declining fixed investment.

• Journal of Distribution Science
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• v.14 no.8
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• pp.51-57
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• 2016

Purpose - If control-ownership disparity is large, managers will not actively reduce costs; rather, they will maintain unutilized resources or possess surplus resources even when sales decrease with the purpose of increasing personal utility from status, power, compensation, and prestige. These managers' utility maximizing tendencies cause cost stickiness. We examine whether asymmetric behavior related to costs becomes stronger when there is a large disparity between ownership and control rights. Research design, data, and methodology - We construct a regression model to examine the relationship between control-ownership disparity and cost stickiness. STICKY, a dependent variable representing cost stickiness is a value found using the method of Weiss (2010), and Disparity is an interest variable that shows control-ownership disparity. Results - This study is based from the unique situations in Korea, in which high control-ownership disparity is common in firms. Large control-ownership disparity was found to increase cost stickiness of corporations. Conclusions - The results of this study imply that controlling shareholders may be regarded as a threat to the interests of minority shareholders and corporate values especially when controlling shareholders have significant influence over managers or the power to make managerial decisions as owners of a corporation.

• Journal of Technology Innovation
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• v.13 no.2
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• pp.133-155
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• 2005

After the publication of the competitive advantage of nations by Porter in 1990, the competitiveness of regional concentrations of industries has been often explained by the cluster concept. There are many definitions of clusters, but they mainly boil down to a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities. The shipbuilding industry in Korea can for sure be regarded as a competitive industry, as the spectacular rise of its world market share from 2% in the early 1970s to the current 38% impressively testifies, but can it be considered a cluster? Based on an analytical framework consisting of a typology of clusters and a context-sensitive evolutionary approach, the paper will show that over the last thirty years Korea's shipbuilding developed from a mere number of isolated, large shipyards (cathedrals in the desert) established by large conglomerates (chaebol) in close collaboration with the central government into an innovative cluster. The cluster is on the one hand characterised by a strongly developed supply industry and specialised universities and research institutes, but on the other hand by a weak, yet increasing role for local and regional institutions The specific and context-dependent characteristics of this innovative cluster are more important explanations for its competitiveness than the financial interventions by the central government, which are repeatedly put forward by European policy-makers in their trade war with Korea.

• The Journal of Small Business Innovation
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• v.21 no.1
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• pp.27-42
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• 2018

As global competition has become more intense in recent years, collaborative cooperation and shared growth between large and small enterprises for enhancing competitiveness of enterprises have become an important social concern. In the long run, collaborative cooperation between large and small enterprises is becoming more important not only in terms of enhancing corporate competitiveness but also in terms of CSR and CSV. In fact, many large companies are strengthening collaborative cooperation. This study compares and analyzes collaborative cooperation cases of major Chaebol companies including Samsung Electronics, and derive implications for collaborative cooperation plan of large companies.

• Asia Pacific Journal of Business Review
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• v.1 no.2
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• pp.17-35
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• 2017

This research is a case study that focuses on how conglomerate illegality and corresponding penalty affects corporate performance and strategy. The research aims to provide base information for policy-makers as well as the general public about the corporate environment. The analysis results can be summarized as follows. First, profitability is represented as an M-curve. Profitability falls from indictment to the final pronouncement of the corporate head and increases upon his or her return. The result suggests that the absence of a corporate head could result in low profitability as the firm is exposed to owner risk. Secondly, significant effects on investment were not found. Investment showed a continuous increase from indictment to final judgment. This could have resulted from investment decisions made prior to the indictment, which are generally long-term. Meanwhile, the rate at which investments rose for core subsidiaries were lower, which makes it reasonable to suspect dwindling executive capacity due to the absence of a corporate head. Thirdly, employment showed a slight increase, but the rate was found to be greater during the periods following the final judgment. From a political perspective, this increase can be inferred from a give-and-take tradeoff between corporate employment and the pardon of the corporate head.

• Korea Trade Review
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• v.44 no.3
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• pp.227-252
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• 2019

This study explores the effects of exports on the innovation of Korean firms listed on two Korean stock markets, the Korean Stock Exchange and the Korean Securities Dealers Quotations, between 1999 and 2016. By matching exporting firms to non-exporting ones with propensity score matching, this study accounts for a problem from sample selection bias that may arise from differences in firm-characteristics between the two groups. From the study results, first, both export participation and export volume significantly increase subsequent innovation performance, as measured by the number of patent applications. This result seems to support the "learning by exporting" hypothesis for Korean listed firms. Second, both export participation and export volume narrow innovation scope, proxied as the number of unique International Patent Classification (IPC) codes of the patent applied, the degree to which patents are concentrated in a particular class, and the degree of proximity in the patents. The findings of innovation scope suggest a possible explanation that the learning effect appears in familiar technology fields that firms have previously held, rather than in unfamiliar ones. Third, these results are robust using alternative proxies in the innovation scope, Tobit regressions to consider the non-trivial portion of sample firms with patent applications equal to zeros, and generalized method of moments (GMM) to control for the persistence of innovation measures hearing over years. Finally, the two main results are more pronounced in large firms than in small and medium-sized ones. As for Chaebol firms, however, these results do not appear.

• Asia-Pacific Journal of Business
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• v.14 no.1
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• pp.215-229
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• 2023

Purpose - Based on the funding-horizon theory, this study aims to test the effects of cash needs and the persistence of external funding needs on firms' external financing. Design/methodology/approach - Financial data of Korean listed companies were collected from DataGuide. Immediate and near-term cash shortfalls are defined using the methodology of Haung and Ritter (2021). We estimate multinomial logit regressions for the financing choice. Findings - First, all three cash depletion variables used in our study increase the likelihood of external financing. Second, firms prefer to issue debt to meet immediate spending and equity to meet long-lived cash needs. Third, this effect is more pronounced for high R&D firms. Fourth, chaebol firms with internal capital markets defer raising external capital for immediate and near-term cash needs. Research implications or Originality - This paper provide empirical evidence that immediate and near-term cash needs induce external financing, and the persistence of cash needs affects the choice between debt and equity, the finding which is consistent with the funding-horizon theory of financing decisions. Being the first paper to test the funding-horizon theory using Korean data, this paper contributes to the literature on the capital structure of Korean firms.

• The Journal of Industrial Distribution & Business
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• v.10 no.6
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• pp.51-58
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• 2019

Purpose - Prior studies reported that the opacity of information caused stock price crash. If managers fail to disclose unfavorable information about the firm over a long period of time, the stock price is overvalued compared to its original value. If the accumulated information reaches a critical point and spreads quickly to the market, the stock price plunges. Information management by management's disclosure policy can cause information uncertainty, which will lead to a plunge in stock prices in the future. Thus, this study aims at examining the impact of disclosure quality on crash risk by focusing on the unfaithful disclosure firms. Research design, data, and methodology - This study covers firms listed on KOSPI and KOSDAQ from 2004 to 2013. Firms excluded from the sample are non-December firms, capital-eroding firms, and financial firms. The financial data used in the research was extracted from the KIS-Value and TS2000 database. Unfaithful disclosure firm designation data was collected from the Korea Exchange's electronic disclosure system (kind.krx.co.kr). Stock crash is measured as a dummy variable that equals one if a firm experiences at least one crash week over the fiscal year, and zero otherwise. Results - Empirical results as to the relation between unfaithful disclosure corporation designation and stock price crashes are as follows: There was a significant positive association between unfaithful disclosure corporation designation and stock price crash. This result supports the hypothesis that firms that have previously exhibited unfaithful disclosure behavior are more likely to suffer stock price plunges due to information asymmetry. Second, stock price crashes due to unfaithful disclosures are more likely to occur in Chaebol firms. Conclusions - While previous studies used estimates as a proxy for information opacity, this study used an objective measure such as unfaithful disclosure corporation designation. The designation by Korea Exchange is an objective evidence that the firm attempted to conceal and distort information in the previous year. The results of this study suggest that capital market investors need to investigate firms' disclosure behaviors.