Jungwon Suh

Investment Financing: Evidence from Korea

This study examines the relative importance of various forms of capital in financing investments by Korean firms. Our results from the seemingly unrelated regression (SUR) method indicate that, unlike U.S. firms, Korean firms rely substantially on cash holdings to finance investments. These results also suggest that Korean firms use long-term debt more actively than equity issuance to finance investments. Subgroup analyses show that large firms and Chaebol-affiliated firms use more long-term debt but less equity issuance than comparison firms do, suggesting that debt capacity allows firms to reduce the use of equity issuance. However, there is little evidence that financing decisions are driven by information asymmetry. The results from the quantile regression (QR) method suggest that Korean firms tend to use debt capital more than they do equity capital at low and medium levels of investments, while their reliance on equity capital increases at high levels of investments.

A J-Shaped Cross-Sectional Relation Between Dividends and Firm Value

This study identifies a J-shaped relation between dividends and firm value. On average, top-dividend-payers are valued higher than all other firms, while non-dividend-payers are valued higher than low-dividend-payers. This J-shaped relation is highly stable over time as it is observed in nearly every year over the period 1962–2010, and it remains significant after controlling for firm characteristics such as profitability, growth and firm size. We also find similar J-shaped relations in stock markets outside the U.S. Our evidence suggests that dividend theories, such as the dividend catering, free-cash-flow and dividend clientele hypotheses, are inadequate to explain the J-shaped relation. It does not appear that the J-shaped pattern reflects mispricing. There is mixed evidence as to whether the J-shaped relation is driven by dividends or unobservable firm characteristics.

The Face of Risk: CEO Testosterone and Risk Taking Behavior

We examine whether a male CEO’s facial masculinity, measured by facial width-to-height ratio (fWHR), predicts the riskiness of his firm. Using the face pictures of 1,162 CEOs in the Execucomp database, we find supporting evidence. Firms with more masculine-faced CEOs have higher stock return volatility and higher financial leverage and are more acquisitive. Their frequency of acquisitions, the dollar amount spent on acquisitions, and the takeover premium are all higher. We find that more masculine-faced CEOs’ compensation is more sensitive to the risk of the firm. The result is robust when we use AI (artificial intelligence)-measured fWHR of the CEOs.Testosterone is a steroid hormone that affects male to aggressively take risks to achieve dominant status. We examine whether CEOs with higher testosterone level make the firms riskier. Since the facial width-to-height ratio (fWHR) of a male adult is determined by his pubertal testosterone exposure, we measure the fWHR male CEOs in both Execucomp and BoardEx that had CNBC interviews during 1997~2009. Controlling for sample selection bias, CEO’s preference for risky hobbies, and overconfidence, we find that high testosterone CEOs (1) increase firm risk; (2) maintain high leverage ratio; (3) are more acquisitive; and (4) receive high VEGA compensation. Key word: testosterone, risk, CEO, leverage, M&A, fWHR, VEGA JEL Classification: G02, G32, G34, M1, Z1 1 Corresponding author. Assistant Professor of Finance, Nanyang Business School, yhkim@ntu.edu.sg , +65-67904639, S3-B1A-16, Nanyang Busness School, Nanyang Business School, Nanyang Avenue, Singapore 639798. We thank Stephen Dimmock, Angie Low, Jun-Koo Kang, Chris Parsons, and Richard Roll for insightful comments. We also thank research assistantship of Gan Zheren, Goh Cai Yun, Grace Wang, Isaiah Ziwei Chia, Jared Wang, Kenn Kee Wen Wong, Li Hui Yi, Loo Pei Yu, Ma Yu Jing, Matthew Lim, Nico Dharmawan, Tan Wei Jie Remus, Yong Mei Ling, Youngjae Jay Choi, Zhang Chuchen, Zou Ziyuan. All errors are our own. 2 Assistant professor of Finance, Nanyang Business School, skamiya@ntu.edu.sg, +65-6790-5718, S3-B1B-64 Nanyang Business School, Nanyang Technological University, Nanyang Avenue, Singapore 639798.

Do Multinational Corporations and Domestic Corporations Differ in Leverage Policies

This study examines the leverage policies of multinational corporations (MNCs) in comparison to those of domestic corporations (DCs). Prior studies document that MNCs have relatively low leverage levels. However, our analysis of U.S. firms over the period 1982-2006 reveals that the leverage levels of MNCs are not significantly lower than those of DCs if we control for key firm characteristics. In addition, MNCs and DCs do not differ significantly in the debt maturity structure. We also find that MNCs and DCs do not differ significantly in terms of the speed of leverage adjustments or the propensity to issue debt vs. equity (or vs. not to issue debt). While prior studies document that MNCs’ financial policies at the subsidiary level are influenced by market imperfections such as taxes and regulations, our findings suggest that their leverage policies at the corporate level are not significantly different from those of DCs. Interestingly, however, our additional analysis of MNCs from outside the U.S. reveals that non-U.S. MNCs issue securities more frequently and adjust leverages faster than their domestic peers do.