Recent Issues

Vol.25/1 (2019, June)
Conditional Conservatism: An Analysis of Nonlinearity and Lead-Lag Relations
Author BOK BAIK and LEE-SEOK HWANG
Keywords Conservatism, Asymmetric timeliness, Nonlinearity, Asset write-offs
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Recent studies have provided evidence that the association between earnings and contemporaneous returns is stronger when returns are negative, reflecting accounting conservatism. In this paper, we investigate two important aspects in this asymmetric timeliness of earnings: (1) whether the contemporaneous earnings-return relation is concave and (2) whether earnings show asymmetric timeliness with respect to lagged returns. We show that the relation between earnings and stock returns is more salient for extreme negative returns, implying a concave relationship between earnings and returns. We also find asymmetric timeliness with respect to lagged returns. Moreover, we find similar results using earnings line items such as special items and discontinued items. Overall, our evidence suggests that the Basu-type regression without considering these two aspects biases the extent of conditional conservatism.
Vol.24/2 (2018, December)
Hyunkwon (kwon) CHo
Author Regulation FD Disclosure of 8-K filing and Stock Crash Risk
Keywords Stock crash risk; Regulation FD; 8-K filings
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This paper tests whether item 7.01 of the Form 8-K filing, which is subject to the regulation FD, mitigates stock crash risk. The regulation FD forces the firm to communicate private information using information channel with broad coverage. Such communications may mitigate the firm’s stock crash risk by revealing the negative news in a more timely manner. Consistently, I find a negative association between the frequency of item 7.01 disclosures with the negative news (measured by market reaction surrounding the Form 8-K filing date) and subsequent stock crash risk. On the contrary, the results show that there is no association between the frequency of item 7.01 disclosures with the positive news and subsequent stock crash risk. Such association is more pronounced when the firm’s is not followed by equity analysts or do not have high percentage of institutional ownership. I also find that item 7.01 disclosures provide incremental information over other voluntary items or mandatory items of the Form 8-K filing. Finally, I use tone of the item 7.01 disclosures to identify whether the news is positive or negative, and find consistent results to the main findings. Overall, these findings suggest that communications subject to the regulation FD, especially the negative ones, are an important mechanism that mitigate stock crash risk.
Vol.24/2 (2018, December)
Credit Risk and Underlying Asset Risk
Author JONG-RYONG LEE
Keywords Credit Risk, Expected Option Return, Pricing of an Option, Pricing of Risky Bond, Relation between Credit Risk as Expected Option Return and Asset Risk
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This paper develops the credit risk of simple risky bond (Merton 1974) as expected option return to the maturity and analytically presents that the credit risk is influenced by the underlying asset risks. The paper moreover shows that the direction and magnitude of the influence depends on what the underlying asset risks are. Simulation results indicate that the relations between the credit risk and the asset risks are different among asset risks.
Vol.24/2 (2018, December)
Investor’s Overreaction to an Extreme Event: Evidence from the World Trade Center Terrorist Attack
Author SOJUNG CAROL PARK
Keywords September 11, Overreaction Hypothesis, Uncertain Information Hypothesis, Information Asymmetry
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This paper investigates whether investors overreacted to the World Trade Center terrorist attack, using insurers’ stock returns. Short-term abnormal return reversals are observed after the 9/11 attack. The reversals may reflect the substantially increased uncertainty surrounding insurer stocks after the event, meaning that the price reactions are efficient risk adjustments. However, after controlling for the change in risk, I still find evidence of price reversals, which I attribute to investor overreaction. To bolster this claim, I provide cross-sectional evidence that reversals are stronger for insurers with higher information asymmetry, which have wider ex-ante bid-ask spreads and smaller numbers of analysts following. This result indicates that the reversals are likely due to behavioral biases.
Vol.24/1 (2018, june)
Feeling Stereotyped and its Effects on Investment Decisions
Author KYOUNGMI LEE
Keywords Stereotype Threat, Investment Decisions, Risk-taking tendency, Avoidance Motivation
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How do consumers respond in financial contexts when a negative stereotype about an ingroup is salient? I predicted and found that, in such circumstances, consumers consistently preferred safe investment options to riskier yet potentially better-pay-off ones, as compared to the situation in which a negative ingroup stereotype is not salient. The results of three experiments suggest that consumers tend to prefer stable securities (e.g., Treasury bonds or stocks with low betas) versus unstable securities (e.g., stocks with high betas) when a negative stereotype to their group is made salient.
Vol.24/1 (2018, june)
What Makes the Divergence between Cross-border VCs and Domestic VCs Persist?: in the Context of the Chinese VC industry
Author YUJIN KIM
Keywords Cross-border venture capitals (VCs), international VCs, VCs in developing economies, VCs in China, determinants of VC investments
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This project introduces the recent development of the Chinese VC industry. One characteristics of the Chinese VC market is that both cross-border VCs and local VCs play significant roles. The two types of VCs show clear difference in terms of invested sectors and geographic regions. This paper provides a literature review to address some mechanisms leading to the divergence. It also documents two mechanisms not addressed in the extant literature through interviews with local investors and startups: the rigidity of a typical startup’s fund structure and the types of limited partners of VCs explain why the divergence takes place in the first place and why the dissimilarity is likely to persist. The simple empirical analysis shows that cross-border VCs are more likely to invest in market-oriented high-tech sectors and regions with relatively well-established market institutions, while local VCs tend to invest in fields and regions of the nation’s strategic focus.
Vol.24/1 (2018, june)
Positive Correlation between Systematic and Idiosyncratic Volatilities in Korean Stock Return
Author KYU-HO BAE, JUNG-WOOK KIM
Keywords systematic volatility, idiosyncratic volatility
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Bartram, Brown, and Stulz (2016) report a strong positive correlation between systematic and idiosyncratic stock return volatilities and suggest heterogeneous firm-level responses to market wide shock may be an underlying driver. We test the hypothesis using Korean stock market data by including additional factors that reflect the macroeconomic conditions to the single factor model used in Bartram, Brown, and Stulz. Even though the correlation decreases by about 25% from 0.85 to 0.64 with additional factors, a substantial positive correlation still remains. In addition, we cannot find evidence that a high correlation industry experiences more volatile corporate sector dynamics in terms of changes in firm ranking and market share.
Vol.24/1 (2018, june)
Group Positive Affect and Group-level Organizational Citizenship Behavior: Investigating the Substituting Role of Leader Emotional Intelligence and the Mediating Role of Affective Fit Perception
Author MOON JOUNG KIM
Keywords group positive affect, affective fit perception, GOCB, leader EI
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In the present study, I examine how group-level positive affect (GPA) may interact with a leader’s emotional intelligence (EI) to generate important group outcomes, such as group-level perception of affective fit and group-level organizational citizenship behavior (GOCB). A moderated mediation model was tested by using the data of 293 employees nested in 66 work groups. Research findings show that the indirect effect of GPA on GOCB through the group-level perception of affective fit is stronger when leader EI is low than when leader EI is high. These results highlight the substituting role of leader EI in the relationship between GPA and affective fit perception. The current analysis reveals potential complementary functions of GPA and leader EI in explaining subsequent group processes and performance.
Vol.23/2 (2017, December)
Internal Labor Markets and Firm Innovation
Author SUNGCHOON KANG, JEONG-YEON LEE
Keywords Internal labor markets (ILMs), Organizational innovation, Resource-based view, Knowledge management, Environmental dynamism
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This study examines the relations between internal labor markets and organizational innovation. From the knowledge-based view, we hypothesize that ILMs will be positively associated with organizational innovation by encouraging employees to share and integrate their knowledge. We also attempt to uncover potential moderating effects of environmental dynamism by focusing on its influence on knowledge stock and flow under ILMs. The empirical results from a sample of 205 firms show that ILMs have an overall positive influence on organizational innovation. However, the positive effect is more pronounced as environmental dynamism increases.
Vol.23/2 (2017, December)
Auditors’ Responses to Organized Labor in Client Firms
Author SIMON YU KIT FUNG, WOO-JONG LEE, BIN SRINIDHI, LIXIN (NANCY) SU
Keywords Labor union, Audit fees, Going-concern audit opinions, Audit report
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Using a sample of US firms for the period 2000-2011, we examine whether organized labor in audit client firms affects auditor decisions such as audit fees and going-concern qualifications. We find that labor unionization is associated with higher audit fees and a higher likelihood of going-concern qualifications but shorter audit report lags, and the results on audit fees are stronger in the case of strikes. These results suggest that the presence of labor union(s) in a client firm constitutes a non-trivial risk element to auditors, which cannot be mitigated by additional audit effort.
Seoul Journal of Business
ISSN 1226-9816 (Print)
ISSN 2713-6213 (Online)