Chongwoo Choe

Corporate social responsibility and corporate financial performance: Evidence from Korea

This paper studies the empirical relation between corporate social responsibility (CSR) and corporate financial performance in Korea using a sample of 1222 firm-years during 2002—2008. We measure corporate social responsibility by both an equal-weighted CSR index and a stakeholder-weighted CSR index suggested by Akpinar et al. (2008). Corporate financial performance is measured by return on equity, return on assets, and Tobin’s Q. We find a positive and significant relationship between corporate financial performance and the stakeholder-weighted CSR index, but not the equal-weighted CSR index. This finding is robust to alternative model specifications and several additional tests, providing evidence in support of instrumental stakeholder theory.

Delegated Contracting and Corporate Hierarchies

In a typical corporate hierarchy, the manager is delegated the authority to make decisions that set directions for the organization, employ subordinates and contract with external suppliers. This paper explains when such delegation of authority can be optimal, using a model of a firm with three parties: the principal, the manager and the worker. In centralization with two two-tier hierarchies, the principal designs contracts for both agents. In delegation with a three-tier hierarchy, the principal directly contracts with a delegated agent who, in turn, contracts with the other agent. We identify an environment where the principal can benefit from delegating authority to the manager, but not to the worker. Beneficial delegation arises endogenously when delegation motivates the manager to acquire valuable information, which is used for better decision-making and more efficient incentive provision to the worker. We also show how total surplus is distributed in delegation vis-a-vis centralization, document comparative statics results regarding the benefits of delegation and the distribution of total surplus, and discuss when delegation is more likely to dominate centralization.

Financial System and Economic Growth: The Korean Experience

This paper examines the relationship between the development of the financial system and economic growth using Korea as a case study. In particular, we focus on the relative development of financial intermediaries and capital markets, and their impact on the portfolio behaviour of the household and business sectors.

Keeping Two Sets of Books: The Relationship between Tax & Incentive Transfer Prices

Multinational enterprises use two types of transfer prices: the tax transfer price to achieve optimal tax outcomes and the incentive transfer price to provide appropriate incentives to offshore managers. The two optimal transfer prices are independent if taxable income is assessed using the formula apportionment approach. Under the separate entity approach, however, they are interdependent: they both decrease as the penalty for noncompliance with the arms length principle increases; and the tax transfer price decreases and the incentive transfer price increases as the marginal cost of production increases. We also examine the case where the incentive transfer price is negotiated rather than dictated by the parent. The results are robust to different market structures and tax environments. Copyright Blackwell Publishing 2005.

Child Labor and Schooling Responses to Access to Microcredit in Rural Bangladesh

Microcredit has been shown to be effective in reducing poverty in many developing countries. However, less is known about its effect on human capital formation. In this paper, we develop a model examining the relation between microcredit and child labour. We then empirically examine the impact of access to microcredit on children’s education and child labour using a new and large data set from rural Bangladesh. We address the selection bias using the instrumental variable method where the instrument relies on an exogenous variation in treatment intensity among households in different villages. The results show that household participation in a microcredit program may increase child labour and reduce school enrolment. The adverse effects are more pronounced for girls than boys. Younger children are more adversely affected than their older siblings and the children of poorer and less educated households are affected most adversely. Our findings remain robust to different specifications and methods, and when corrected for various sources of selection bias.

The economics of household waste management: a review

In recent years reducing the amount of waste generated by households has become an important policy issue in industrialised economies. It is no longer acceptable to discard waste without concern for environmental and natural resource issues. In an effort to reduce household waste various policy instruments such as kerbside charges, deposit‐refund schemes, integrated sales tax exemptions and virgin material taxes, have been proposed and/or implemented. This article reviews the economics literature that has addressed household waste management. It is argued that a comprehensive modelling framework is necessary if the complex policy environment is to be accurately described.

Contract management responsibility system and profit incentives in China's state-owned enterprises

While the enterprise reform in China has provided incentives to its state-owned enterprises (SOEs), their poor performance relative to other forms of enterprises remains puzzling. This paper provides an answer to this puzzle by studying optimal managerial decisions under the enterprise reform.

Contract Design and Costly Verification Games

Abstract In this paper, the signalling subgame in costly verification models is studied in the context of the investor–entrepreneur contract without assuming the possibility of commitment to verification. It is shown that the game has a unique Perfect Bayesian Equilibrium in mixed strategies, implying that truth-telling and deterministic verification are not an equilibrium behavior. When the entire game starting from the stage of contract design is considered, it is shown that the contract designed by the informed entrepreneur results in less verification cost than the one designed by the uninformed investor. This could be taken as a normative criterion based upon which institutional arrangements as regards the distribution of bargaining initiative are to be designed.

On the Flexibility of Optimal Policies for Green Design

Several recent papers show that different combinations of taxes and subsidies can achieve the social optimum for green design and household waste management when there are various market failures. This note shows that such policy flexibility exists only if all relevant actions by individual agents can be properly targeted by economic instruments. If the household can make a private effort to reduce waste, then an optimal policy is shown to be a unique combination of given economic instruments.

Corporate diversification, executive compensation and firm value: Evidence from Australia

We estimate the effect of corporate diversification on firm value using a sample of 766 segment-year observations during 2004–2008 for firms listed on the Australian Stock Exchange as of August 2009. In addition to conventionally used measures of diversification, we develop five new measures of diversification that explicitly take into account the degree to which a multi-segment firm’s various segments are in related lines of business. We use three different excess value measures to estimate the valuation effect of diversification. We find that multi-segment firms in our sample enjoyed a significant diversification premium that ranges from 12.4% to 18% depending on the measures of diversification and excess value. We also find some evidence that multi-segment firms benefit more from diversification when their executives are motivated more through long-term incentives such as stock and stock options.