The impact of low interest rates on corporate policies after the global financial crisis : Focusing on BBB-rated firms

Kyojik “Roy” Song 한국재무학회 2020 한국재무학회 학술대회 Vol.2020 No.11

Using the sample of US industrial firms over the period of 2000-2017, we find that firms tend to issue more debt after the global financial crisis to take advantage of lower borrowing rates and specifically, BBB-rated firms increase debt issuance more than other firms. We also document that the BBB-rated firms build up cash and increase payout ratios using the proceeds from the issuance in the post-crisis period. However, they tend not to increase R&D expenses or capital expenditures following the debt issuance. We further find that the market value of cash for BBB-rated firms is decreasing in the post-crisis period as they increase cash holdings, while that for other investmentgrade firms does not change. These results are consistent with the view of agency costs.

Determinants of Corporate Financial Investment : Evidence from Korea

Juran Kim,Kyojik (Roy) Song 한국재무학회 2020 한국재무학회 학술대회 Vol.2020 No.11

Extending DGHH (2017), we investigate the determinant of risky financial asset holdings of Korean industrial firms. We specifically focus on the difference on the determinants of risky financial assets for Chaebol vs. stand-alone firms, and find that Chaebol firms tend to increase more in risky financial assets as their financial assets grow than stand-alone firms. The standalone firms with low operating performance, low sales growth, high leverage, and short-term debt redemption pressure invest more in risky financial assets to make up for their worse operating performance, while the risky financial assets of Chaebol firms are not related to their operating performance or financial distress. These results are not fully explained by the precautionary motive of cash holdings.

Determinants of Corporate Financial Investment : Evidence from Korea

Juran Kim,Kyojik Roy Song 한국재무학회 2022 財務硏究 Vol.35 No.1

Informed trading before positive vs. negative earnings surprises

Tae-Jun Park,Kyojik “Roy” Song 한국재무학회 2012 한국재무학회 학술대회 Vol.2012 No.05

This paper investigates whether institutional investors trade profitably around earnings announcements. We argue that institutions have informational advantage before negative earnings surprises but not before positive earnings surprises since the positive news tend to leak to market before the event. Using unique Korean data over the period of 2001-2010, we find that trading volume decreases only before the negative event due to information asymmetry among investors. We also find that institutions sell the stock before the negative earnings surprises but individual investors do not anticipate the bad news, and that trade imbalance by the institutions is positively related to the announcement abnormal returns of the negative events. The evidence is consistent with our conjecture that the domestic institutions exploit their superior information around the negative earnings surprises. Our results also show that foreign investors do not have any informational advantage compared to local investors on the upcoming earnings news.

Informed trading before positive vs. negative earnings surprises

Tae-Jun Park,Kyojik “Roy” Song 한국재무학회 2013 한국재무학회 학술대회 Vol.2013 No.08

This paper investigates whether institutional investors trade profitably around positive or negative earnings surprises. Using unique Korean data over the period of 2001-2010, we find that the trading volume decreases only before the negative events due to information asymmetry among investors. We also find that institutions sell their stock prior to negative earnings surprises whereas individual and foreign investors do not anticipate bad news. Hence, institutional trade imbalance is positively related to the announcement abnormal returns of the negative events. The evidence is consistent with our conjecture that domestic institutions exploit their superior information around the negative earnings surprises.

Refinancing risk and earnings management

Yura Kim,Seonmi Kim,Kyojik “Roy” Song 한국재무학회 2019 한국재무학회 학술대회 Vol.2019 No.11

We measure a firm’s refinancing risk as the ratio of its debt maturity to asset maturity and test the relation between refinancing risk and discretionary accruals. Using US data over the period of 1988-2015, we find that firms with higher refinancing risk engage in more income-increasing accruals management, which indicates that the firms have opportunistic incentives to inflate earnings to appear financially attractive to potential creditors. The positive relation between refinancing risk and discretionary accruals is not explained by leverage or imminent debt issuance. We also document that the firm’s cash holdings attenuate the adverse effect of the refinancing risk on earnings management. Overall, our findings suggest that refinancing risk provides an important motive for accruals management.

The choice between an IPO, sellout, and reverse takeover : Korean evidence

Young K. Chang,Inho Kim,Kyojik “Roy” Song 한국재무학회 2009 한국재무학회 학술대회 Vol.2009 No.05

We investigate the characteristics of firms that choose between three different methods, IPOs, sellouts, or reverse takeovers to obtain exchange listings using Korean data over the period of 2000-2006. We first document that Korean firms, unlike U.S. firms, use reverse takeovers more frequently than IPOs to go public. We find that firm size, profitability, asymmetric information, and venture capital backing are important factors in determining the choice of the firms. Small and profitable firms tend to choose IPOs to go public, and they are subject to less information asymmetry. Large and unprofitable firms tend to choose sellouts and reverse takeovers to obtain public status. Compared to sellout firms, reverse takeover firms tend to be venture-capital backed and time stock markets. We also investigate the long-run stock return performance after these firms go public. Although all the firms underperform the market on average, the firms using reverse takeovers perform the worst.

Off-Balance Sheet Investments, Earnings Quality and Firm Leverage

Ayca Altintig,Tomas Mantecon,James Conover,Kyojik “Roy” Song 한국재무학회 2010 한국재무학회 학술대회 Vol.2010 No.05

Equity method (EM) reporting of off-balance sheet investments offers managers discretion to manipulate earnings and keep the debt of their investments off their own balance sheet. Consistent with these concerns, our results suggest that the use of EM reporting negatively affects the quality of earnings information. The evidence also suggests that managers of U.S. firms take advantage of the discretion provided by the EM to conceal debt. These results are especially relevant when the investment is a joint venture. The analysis shows that financial markets incorporate into prices any expected loss of informativeness derived from the reporting of off-balance investments.

Company stock in defined contribution plans and stock market returns

박희진(Heejin Park),노정희(Jung-Hee Noh),송교직(Kyojik Roy Song) People&Global Business Association 2021 Global Business and Finance Review Vol.26 No.3

Purpose: We examine whether employee ownership in DC plans are explained by either shared capitalism or managerial entrenchment motives. Design/methodology/approach: We calculate the average monthly risk-adjusted return (alpha) of each portfolio by sorting firms into six portfolio groups based on the percentage of employer stock in market value of equity. Findings: We find that the zero-investment strategy of buying a portfolio without employee ownership and selling a portfolio with the largest employee ownership earns 1.32% of alpha per month. Further, we provide evidence that portfolios with higher employee ownership experience greater distress risk. Research limitations/implications: These findings suggest that the capital market significantly overvalues firms with employee ownership in DC plans, supporting managerial entrenchment motives. Originality/value: To the extent that there has been no research to provide time series evidence on the relation between employee ownership and stock returns, this study’s novelty is that it could explain the mixed results presented by previous literature.