Recent Issues

Vol.27/2 (2021, December)
Does Analyst Coverage Encourage Firm Innovation? Evidence from Korea
Author WOOJIN KIM, YOONYOUNG CHOY
Keywords corporate venture capital, financial analysts, innovation, acquisition, R&D
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This paper examines whether analyst coverage affects firm innovation in an economy dominated by family-controlled business groups. Using a sample of Korean publicly traded firms from 2010 to 2018, we find that an increase in financial analysts leads covered firms to cut investments in corporate venture capital and R&D. Moreover, reduction in innovation through acquisitions is more pronounced when analysts are from chaebol (family-controlled large business group) affiliated brokerages. These findings suggest that unlike in U.S., analyst coverage puts pressure on managers to meet the analysts’ forecasts, thereby impeding innovation under such environment.
Vol.27/2 (2021, December)
Information Uncertainty and Intraday Market Responses to Corporate Disclosures: A Study of the Korean Stock Market
Author BRYAN BYUNG-HEE LEE, DURI PARK
Keywords intraday market responses; corporate disclosures; information uncertainty
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Using market microstructure data, this study analyzes intraday market responses to corporate disclosures subject to Regulation Fair Disclosure in Korea and examines whether the intraday market responses are affected by information uncertainty. We show that corporate news is incorporated into stock prices in an efficient and timely manner. We further document that positive stock returns and trading volume to good news disclosures are stronger for firms with higher information uncertainty. Overall, our evidence suggests that information uncertainty plays an important role in investors’ reactions to corporate disclosures.
Vol.27/2 (2021, December)
Auditors’ Response to Audit Fee Lowballing: The Change in Audit Hours and Hourly Audit Fees
Author SUNYOUNG PARK, EUGENIA Y. LEE, JONG-HAG CHOI
Keywords auditor change, lowballing, audit hours, hourly audit fees
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This study examines how lowballing auditors adjust audit hours and hourly audit fees. Using Korean data, we first find that both lowballing auditors and other auditors increase audit hours in the first year of an audit engagement. However, only lowballing auditors charge lower hourly audit fees in the initial year. The results suggest that lowballing auditors charge low hourly fees to win a new audit contract while exerting more effort to maintain an appropriate level of audit quality. Our findings mitigate regulators’ concern that lowballing auditors would reduce effort and sacrifice audit quality to attract new contracts.
Vol.27/1 (2021, June)
Overproduction, Aggregate Accounting Performance, and Gross Domestic Product
Author Bjorn N. Jorgensen, Yonggyu Lee, and Hyungil Oh
Keywords Overproduction, Aggregate earnings, Gross domestic product (GDP)
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This paper explores possible links between overproduction and future gross domestic product (GDP) growth. Using a measure of economywide overproduction that captures firms’ real earnings management (REM) incentives, we find that REM-driven overproduction has a negative moderating effect on the positive association between growth in aggregate accounting performance and one-quarter-ahead GDP growth documented in the literature. We also find that macro forecasters do not fully incorporate this effect into their forecasts. Our findings contribute primarily to the literature that links aggregate accounting information to GDP growth.
Vol.27/1 (2021, June)
The Effects of Procedural Justice and Supervisor Close Monitoring on Knowledge Sharing
Author Abhishek Srivastava, Haeseen Park, and Seokhwa Yun
Keywords Procedural Justice, Supervisory Support, Close Monitoring, Scouting Behavior, Knowledge Sharing
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This study focused on some key antecedents of knowledge sharing by individual employees. The aim was to identify the roles of contextual factors (procedural justice and supervisor close monitoring) and the mediating variables (perceived supervisory support and scouting behavior) in knowledge sharing. We surveyed 157 employees and their coworkers and supervisors to measure different variables thereby reducing common source bias. Analysis with structural equation modeling showed that the effect of procedural justice on knowledge sharing was completely mediated by perceived supervisory support. Similarly, the effect of supervisor close monitoring on knowledge sharing was completely mediated by scouting behavior and perceived supervisory support. The indirect effects were significant in both cases.
Vol.27/1 (2021, June)
Liability of High Status: Overpayment to Relieve Status Anxiety in the English Premier League
Author Michael Park and Gyungmook Lee
Keywords Status anxiety, English Premier League, Overpayment, Liability of higher status
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Extant literature on status has emphasized the benefits of high status for organizations. This paper, however, explores the economic costs that high status actors may accrue in market transactions. We hypothesize that high status actors are likely to engage in economically costly efforts, such as overpayment in acquiring resources that critically influence their image to relieve their status anxiety. We also hypothesize that they are more likely to engage in such behavior when there are no other efficient ways to relieve the status anxiety and when such behavior is particularly effective in alleviating the anxiety. Empirical analysis with the panel data of the English Premier League teams provides strong supports for the hypotheses. It finds that high status teams are more likely to purposely overpay for the acquisition of players, especially for younger ones and in the summer transfer windows. Based on the results, we discuss theoretical implications, limitations, and future research directions.
Vol.27/1 (2021, June)
The Marginal Decomposition Approach Quantifying Direct and Indirect Effects in Causal Models
Author Sang-June Park and Youjae Yi
Keywords Causal mediation, Direct effect, Indirect effects
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Many researchers have analyzed causal mediation with the measures for direct and indirect effects in a system of regression models. The direct effect indicates the effect of a focal predictor not through a mediator, whereas the indirect effect indicates the effect of the focal predictor through a mediator. Various versions of two approaches (product approach and potential outcomes approach) have been used to find the measures indicating the quantified direct and indirect effects in a system of regression models. However, it may not be easy to identify the measures with the two approaches, because they do not provide a general formula for identifying the measures in various systems of regression models. Thus, this paper proposes a new approach providing a general formula for identifying the measures intuitively and clearly. The new approach decomposes the effect of a focal variable on a dependent variable into five additive components in view of moderation and mediation.
Vol.26/2 (2020, December)
Holding Period and Investor Performance: An Analysis of Account-Level ELW Transactions
Author YOUNGSOO CHOI, WOOJIN KIM, EUNJI KWON
Keywords Option, ELW (Equity Linked Warrant), HFT (High Frequency Trader), Korea
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This paper documents that median holding period in structured products based on market index is less than a day from initial purchase to liquidation even for retail investors. Less than 6% of all series ever traded by retail investors are held until maturity. Based on a unique proprietary dataset that provides the details of all transactions - including account identifier and direction of the trade - in the Korean ELW (equity linked warrant) market between 2009 and 2011, we find that trading performance is negatively correlated with holding period. Specifically, both HFT (high frequency trader) accounts and non-HFT accounts perform worse when either average holding period is long or average end-of-the-day position is large. Our findings suggest that the relationship between holding period and trading performance in the structured product markets may be fundamentally different from those in equity markets.
Vol.26/2 (2020, December)
Value of Friendship: Instrumental and Sentimental Motivations for Corporate Executives’ Networking Behavior
Author JOE (PYUNG) NAHM, SUN HYUN PARK
Keywords Corporate Executives, Networking Motivations, Social Networks, Social Exchange Theory
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We examine how corporate executives form and retain interpersonal ties with other executives. Drawing on social exchange theory, we argue that corporate executives have instrumental and sentimental motivations in their efforts to develop ties with other executives. Our results show that the higher (lower) instrumental (sentimental) motivations of an executive, the higher the likelihood of friendship seeking tie, since executives pursue different benefits from ties. Executives also seek advice from more competent executives, and the instrumental motivation continues to impact executive’s retention of friendship ties. Utilizing social network data among Korean executives, our empirical data provide support for our arguments.
Vol.26/2 (2020, December)
Distorted Cost Allocation: An Encouragement or Discouragement?
Author MINJAE KOO, JEONG-HOON HYUN, INY HWANG, TAESIK AHN
Keywords Cost allocation, cost distortion, divisional incentives, accurate cost drivers
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Firms allocate divisions overhead costs, to provide information for management decisions (information perspective) and create incentives to control costs (motivation perspective). They occasionally distort (overor under-allocate) cost, so that the allocated cost is deviated from the optimal level for which divisions are expected to be accountable (hereafter, cost distortion). We study the impact of cost distortion on divisional performance and firm performance. We find that both over- and underallocation discourage divisional managers from improving their subsequent performance and that cost distortion negatively affects the overall firm performance. Our findings suggest that for motivation and decisionfacilitating purpose, it is desirable that overhead costs are allocated at an anticipated level.
Seoul Journal of Business
ISSN 1226-9816 (Print)
ISSN 2713-6213 (Online)