Recent Issues

Vol.28/1 (2022, June)
Sabotage! Whistle-blowing Inside Family Firms During Succession Tournaments
Author JONGSUB LEE
Keywords Family Firms, Family Governance, Corporate Fraud, Succession Tournaments, Sibling Rivalry
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We document an unusual surge in fraud investigations for family firms with multiple sons who compete for leadership successions. Shareholders negatively react to the news, while such fraud investigations are concentrated in firms run by families with extensive internal conflicts, leading to strong whistle-blowing incentives inside the family (i.e., sabotage). Using the sudden death of a chairman as an exogenous shock that increases conflicts among potential heirs of the family firm, we find sharply increasing fraud investigations after the chair’s death. Overall, our results shed new light on the significant spillover from family governance to corporate governance in family-run organizations.
Vol.28/1 (2022, June)
Venture Capitalists in the Entrepreneurial Ecosystem and Fitness-reducing Competition
Author SEUNGYOUNG LEE, JONGHOON BAE
Keywords Entrepreneurship, Matching Failure, Agent-based Modeling, Partner Selection, Venture Capital
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Although the role of venture capital (VC) in entrepreneurship is undeniable, we address possible risks associated with the over-dependence of the ecosystem on VC firms. In particular, we examine whether the supply of VC promotes or undermines the creation of entrepreneurial value in a community even when VC firms serve as an effective selector of such value. With an agent-based model of entrepreneurship where entrepreneurs are uninformed of the capabilities of the potential business partners, we suggest that the local efficiency of VC firms in the matching process may lead to the information-cascade type of herding behavior among entrepreneurs, which undermines paradoxically the overall efficiency of the ecosystem. With this implication, we seek to contribute to the literature on entrepreneurship by highlighting the possibility that competition-promoting institutions may destabilize the market itself such that VC firms as the efficient selector of entrepreneurial opportunities may induce uninformed, non-VC-backed startups to imitate the investments of VC firms, thereby reducing the diversity of entrepreneurial activities and thus the stability of the entrepreneurial ecosystem.
Vol.28/1 (2022, June)
Informativeness of Peer Performance and Analyst Forecasts in Performance Target Setting
Author SUN-MOON JUNG, SEWON KWON, JAE YONG SHIN
Keywords Performance Target, Target Ratcheting, Relative Target Setting, Analyst Forecasts, Peer Performance
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Firms consider external information such as peer performance data and analyst forecasts when setting performance targets because this information provides relevant benchmarks about agents’ productivity. Using the EPS targets of S&P 1500 firms from the 2006–2014 period, we examine whether firms’ reliance on certain benchmarks depends on the relative informativeness of the external information. We find that firms put greater weight on analyst forecasts than on peer performance information because their profitability is less likely to comove with that of their peer firms. We also find that the use of forecasts increases in settings where analyst forecasts are more informative regarding focal firms’ profitability.
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.
Seoul Journal of Business
ISSN 1226-9816 (Print)
ISSN 2713-6213 (Online)