Chune Young Chung

Foreign investor trading and information asymmetry: evidence from a leading emerging market

ABSTRACT This article examines the influence of foreign investor trading on information asymmetry in the Korean stock market, a representative emerging market characterized by a high level of information asymmetry between corporate insiders and outsiders, and among investors. We find a significantly positive relationship between foreign investor trading and the consequent bid–ask spread – the latter of which is considered as a proxy for the degree of information asymmetry – on both daily and weekly bases. Our results indicate that active foreign investor trading tends to exacerbate informational variation.

Does hometown advantage matter? The case of institutional blockholder monitoring on earnings management in Korea

AbstractThis study uses a large sample of Korean firms to examine institutional blockholders’ influence on corporate earnings management. The Korean market is an interesting setting to study institutional monitoring because it is dominated by chaebols, which are characterized by ineffective internal governance mechanisms. We find evidence that institutional blockholders deter opportunistic financial reporting, and such activities are the most evident among domestic institutional blockholders. Foreign institutional blockholders, especially those with short-term investment objectives, lead to more discretionary reporting. Our findings are robust to various empirical models and endogeneity checks. Moreover, this study offers new insight into the proximity advantage of domestic institutional investors with regard to monitoring information. It also highlights institutional investors’ roles in shaping corporate governance in emerging markets, in which sound corporate governance has become increasingly important for firms’ long-term sustainability. One important policy implication is that regulatory authorities should aim to promote institutional investors’ participation in these markets.nRésuméCette étude utilise un large échantillon de firmes coréennes pour étudier l’influence des actionnaires institutionnels dominants sur la gestion des résultats des sociétés. Le marché coréen constitue un contexte intéressant pour étudier le contrôle institutionnel parce qu’il est dominé par des chaebols qui sont caractérisés par des mécanismes de gouvernance interne inefficients. Nous constatons que les actionnaires institutionnels dominants détériorent le reporting financier opportuniste, et que ces activités sont plus visibles parmi les actionnaires institutionnels dominants domestiques. Les actionnaires institutionnels dominants étrangers, plus particulièrement ceux ayant des objectifs d’investissement à court terme, donnent lieu à un reporting plus discrétionnaire. Nos résultats sont robustes face à plusieurs modèles empiriques et à des vérifications d’endogénéité. Par ailleurs, cette étude offre un nouvel éclairage sur l’avantage de proximité des investisseurs institutionnels domestiques concernant le contrôle de l’information. Elle met aussi en relief les rôles des investisseurs institutionnels dans la structuration de la gouvernance d’entreprise dans les marchés émergents où une gouvernance d’entreprise solide est devenue plus importante pour la pérennité des firmes sur le long terme. Une implication politique importante est que les autorités de régulation devraient s’efforcer de promouvoir la participation des investisseurs institutionnels sur ces marchés.ResumenEste estudio usa una amplia muestra de empresas coreanas para examinar la influencia de los bloqueadores institucionales en la gestión de las ganancias corporativas. El mercado coreano es un escenario interesante para estudiar el monitoreo institucional porque está dominado por chaebols, los cuales están caracterizados por mecanismos ineficaces de gobernanza interna. Encontramos evidencias que los bloqueadores institucionales hacen disuadir los reportes financieros oportunistas, y estas actividades son las más evidentes entre los bloqueadores institucionales nacionales. Los bloqueadores institucionales extranjeros, especialmente aquellos con objetivos de inversión a corto plazo, conducen a reportes discrecionales. Nuestros hallazgos son robustos a varios modelos empíricos y controles de endogeneidad. Además, este estudio ofrece un nuevo entendimiento de la ventaja de proximidad de los inversionistas domésticos institucionales con respecto al monitoreo de información. También resalta los roles de los inversionistas locales en la configuración de la gobernanza corporativa en mercados emergentes, en los que el buen gobierno corporativo se ha vuelto cada más importante para la sostenibilidad de largo plazo de las empresas. Una importante implicación para la política es que las autoridades regulatorias deben tener como objetivo promover la participación institucional de los inversionistas en estos mercados.ResumoEste estudo usa uma grande amostra de empresas coreanas para examinar a influência de blockholders institucionais sobre o gerenciamento de ganhos corporativos. O mercado coreano é um cenário interessante para estudar o monitoramento institucional porque é dominado por chaebols, caracterizados por mecanismos de governança interna ineficazes. Encontramos evidências de que os blockholders institucionais evitam a divulgação oportunista de relatórios financeiros, e que essas atividades são mais evidentes entre os blockholders institucionais nacionais. Os blockholders institucionais estrangeiros, especialmente aqueles com objetivos de investimento de curto prazo, levam a relatórios mais discricionários. Nossas descobertas são robustas para vários modelos empíricos e verificações de endogeneidade. Além disso, este estudo oferece uma nova visão da vantagem de proximidade dos investidores institucionais nacionais em relação à monitoração de informações. Também destaca os papéis dos investidores institucionais na definição da governança corporativa nos mercados emergentes, em que uma sólida governança corporativa tornou-se cada vez mais importante para a sustentabilidade a longo prazo das empresas. Uma importante implicação política é que as autoridades reguladoras devem procurar promover a participação dos investidores institucionais nesses mercados.概要本研究用韩国公司的大样本来研究机构大股东对公司收益管理的影响。韩国市场由于被特点是低效的内部治理机制的财团所主导,因而是研究机构监控的一个有趣环境。我们发现的证据表明,机构大股东阻止投机的财务报告,此类活动在国内机构大股东中最为明显。外国机构大股东,特别是那些投资目标短期的,会导致更多任意决定的报告。我们的发现对各种实证模型和内生检查是稳准的。此外,这项研究在监控信息方面对国内机构投资者的接近优势有新见地。这也凸显了在新兴市场公司治理塑造中机构投资者的角色,其中健全的公司治理对公司长期可持续发展日益重要。一个重要的政策启示是,监管部门应着眼于促进机构投资者在这些市场中的参与。

SEO underpricing in China's stock market: a stochastic frontier approach

This article studies a sample of 225 Chinese A-share Seasoned Equity Offerings (SEOs) from 1999 to 2007. We compare a novel underpricing measure with a Stochastic Frontier Approach (SFA) as in Koop and Li (2001) to the conventional measure based on the difference between primary market price and secondary market price. We find that SEO underpricing exists in Chinas stock market, but there is a vast discrepancy between the magnitudes under the two different measures. Also, our empirical results show that the main determinants of the underpricing are associated with high asymmetric information among underwriters, issuers and investors, which is unsurprisingly pronounced in emerging markets such as that of China.

Accrual Quality and Opportunistic Seasoned Equity Offering in the Korean Stock Market

Abstract We examine accrual quality (AQ) and its relationship with opportunistic seasoned equity offering (SEO) in the emerging Korean stock market. According to our empirical results, SEO firms with lower AQ tend to show higher abnormal returns around SEO announcement and significantly lower long-term performance after SEO. These results are more evident for SEO firms in which influence of institutional investors is weak. These findings suggest that poor AQ may be an important predictor of incentive for opportunistic SEOs and that the incentive may strengthen when institutional investors’ monitoring role weakens.

Does institutional monitoring matter? Evidence from insider trading by information risk level

ABSTRACT We examine the effects of institutional ownership on insider exploitation of asymmetric information. Because institutional investors monitor firm activities in order to improve the corporate information environment, such monitoring could decrease the intensity of insider trading on private information. We find that large, long-term institutional ownership is negatively and significantly related to the extent of insider trading associated with information risk. This suggests that institutional monitoring mitigates information asymmetry among investors, resulting in lower information risk, thus restricting informed insider trading.

A novel measure of liquidity premium: application to the Korean stock market

ABSTRACT This study proposes a novel measure for an asset’s liquidity premium. Applying Brownian first-passage time distribution properties, we derive an explicit form of liquidity premium embedded in the asset price. Our liquidity premium measure is intuitive because it assesses the extent to which the value of the asset should be increased from the current market price if investors were allowed to retain the asset until they achieve an investment goal. This measure is readily available for assessing an asset’s liquidity because it does not require information on the asset’s transactional characteristics. Our empirical experiment using Korean stock market data suggests that the liquidity premium in this study is inversely related to Amihud’s (2002) illiquidity ratio, which is commonly used to measure stocks’ illiquidity.

Institutional investors and opportunistic seasoned equity offerings in the Korean stock market

ABSTRACT This study examines the impact of institutional monitoring on opportunistic seasoned equity offerings (SEOs) in the Korean stock market. With a firm’s accrual quality as a measurement for the degree of information asymmetry between managers and investors, we hypothesize that the managers of firms with poor accrual quality are likely to engage in opportunistic SEOs, but such opportunistic activity is weak in firms strongly monitored by institutional investors. The empirical findings indicate that opportunistic SEOs tend to be deterred by institutional monitoring.

Institutional investor trading in a short investment horizon: : Evidence from the korean stock market

Abstract We examine the weekly trading activities of institutional investors in the Korean stock market. First, we find that average net trades by institutional investors this week are negatively related to one-week lagged returns, suggesting that they could be contrarian traders. Second, our finding shows that institutional investors’ net trades this week are positively related to the net trades next week, consistent with persistent trading and/or herding behavior. Third, we find that institutional net trades are positively related to the post one-week returns. Finally, our findings are most pronounced in the group of short-term institutional investors.

State-dependent risk and M&A

ABSTRACT During economic contractions, the asset and capital structures of firms are more likely to deviate from their optimal levels. Target firms, in particular, are more susceptible to such deviations. I study how such deviations affect the bidding firms’ acquisition decision. I find that bidders abstain from taking over targets when the debts and growth options of the targets are over their optimal levels. Further, I show that bidders are more likely to pay a low premium for such targets. Both results are pronounced when the aggregate economy has had a bad shock; these results are associated with higher risks because of the excessive levels of debts and growth options. Overall, these results uncover the impact of the targets’ abnormal debts and growth options on the bidders’ acquisitions, contingent on the state of the economy.

Optionable Stocks and Mutual Fund Performance

We examine whether stock-level options information drives mutual fund performance. Our paper is motivated by existing studies indicating that options prices or implied volatilities predict stock returns. We find that stock-implied volatility innovations forecast mutual fund performance. Specifically, mutual funds investing in fewer optionable stocks or optionable stocks with favorable information outperform other funds. In addition, mutual fund managers overall do not trade on past options information. However, well-performing fund managers use that information to decrease their holdings in poorly-performing stocks. Moreover, well-performing mutual funds containing strong options information tend to increase their holdings in optionable stocks in subsequent periods.