Kee H. Chung

Corporate Governance and Liquidity

We investigate the empirical relation between corporate governance and stock market liquidity. We find that firms with better corporate governance have narrower spreads, higher market quality index, smaller price impact of trades, and lower probability of information-based trading. In addition, we show that changes in our liquidity measures are significantly related to changes in the governance index over time. These results suggest that firms may alleviate information-based trading and improve stock market liquidity by adopting corporate governance standards that mitigate informational asymmetries. Our results are remarkably robust to alternative model specifications, across exchanges, and to different measures of liquidity.

Corporate Governance and Institutional Ownership

In this study we examine the relation between corporate governance and institutional ownership. Our empirical results show that the fraction of a company’s shares that are held by institutional investors increases with the quality of its governance structure. In a similar vein, we show that the proportion of institutions that hold a firm’s shares increases with its governance quality. Our results are robust to different estimation methods and alternative model specifications. These results are consistent with the conjecture that institutional investors gravitate to stocks of companies with good governance structure to meet fiduciary responsibility as well as to minimize monitoring and exit costs.

Investment Options, Assets in Place, and the Risk of Stocks

This study views the firms future investment opportunities as operating options and examines the effect of growth opportunities on the firms systematic risk using contingent claims analysis. The study predicts that the greater the portion of a stocks market value accounted for by the firms growth opportunities, the higher the systematic risk. Overall, our empirical results strongly support this hypothesis. Furthermore, including firm size in empirical analysis does not significantly change the relationship between the stock beta and growth variables. Thus, we conclude that the effect of growth on stock risk is independent of firm size.

Executive Ownership, Corporate Value, and Executive Compensation: A Unifying Framework

This study presents an integrated investigation into the factors affecting executive ownership, the market value of the finn, and executive compensation by explicitly incorporating the simultaneity of the process determining these variables into the empirical estimation, Overall, the results of the study support the notion that a finns market value, executive stock ownership, and executive compensation are jointly determined. Further, the findings suggest that executive stock ownership and executive compensation may serve as a type of bond by which top executives are induced to act in the best interests of shareholders, The study also finds that a finns q ratio and an executives job-specific experience (as well as finn size) are important determinants of executive compensation. This result is generally consistent with the view that the firm optimally establishes its managerial compensation plan in response to both its operating environment and the specific personal characteristics of its chief executive(s).

Investment Opportunities and Market Reaction To Capital Expenditure Decisions

In this study, we argue that share price reaction to a ®rms capital expenditure decisions depends critically on the markets assessment of the quality of its investment opportunities. We postulate that announcements of increases (decreases) in capital expenditures positively (negatively) affect the stock prices of firms with valuable investment opportunities. Contrarily, we predict that announcements of increases (decreases) in capital spending negatively (positively) affect the share prices of firms without such opportunities. Our empirical results are generally consistent with these predictions. Overall, empirical evidence supports our conjecture that it is the quality of the firms investment opportunities rather than its industry affliation which determines the share price reaction to its capital expenditure decisions.

A Stochastic Model of Superstardom: An Application of the Yule Distribution

This study employs a stochastic model developed by G. Udny Yule and Herbert A. Simon as the probability mechanism underlying the consumers choice of artistic products and predicts that artistic outputs will be concentrated among a few lucky individuals. We find that the probability distribution implied by the stochastic model provides an excellent description of the empirical data in the popular music industry, suggesting that the stochastic model may represent the process generating the superstar phenomenon. Because the stochastic model does not require differential talents among individuals, our empirical results support the notion that the superstar phenomenon could exist among individuals with equal talent. Copyright 1994 by MIT Press.

Order Preferencing and Market Quality on NASDAQ Before and After Decimalization

Despite the widely held belief that order preferencing affects market quality, no hard evidence exists on the extent and determinants of order preferencing and its impact on dealer competition and execution quality. This study shows that the bid-ask spread (dealer quote aggressiveness) is positively (negatively) related to the proportion of internalized volume during both the pre- and post-decimalization periods. Although decimal pricing led to lower order preferencing on NASDAQ, the proportion of preferenced volume after decimalization is much higher than what some prior studies had predicted. The price impact of preferenced trades is smaller than that of unpreferenced trades and preferenced trades receive greater (smaller) size (price) improvements than unpreferenced trades.

Corporate governance and market valuation of capital and R&D investments

Abstract In this study, we examine how corporate governance structure affects market valuation of capital and R&D investments. We employ three empirical proxies of corporate governance—analyst following, board composition, and institutional holdings, and study whether market valuation of corporate investments varies with governance structure. Our results show that the market valuation of the firms capital and R&D investments depends critically on analyst following and board composition, but not on institutional holdings.

Corporate Ownership and the Value of a Vote in an Emerging Market

Empirical evidence suggests that the voting premium in the Korean securities market is strongly related to the structure of corporate ownership. We find that the premium attached to voting stock is positively and significantly associated with the control value of a block of shares held by minority shareholders. We also find that the premium is negatively related to both the fraction of shares that are voting shares and the market value of equity. Empirical results indicate that private benefits of control in Korea are worth about 10% of the value of equity.

Production of information, information asymmetry, and the bid-ask spread: Empirical evidence from analysts' forecasts

In this paper we suggest that market makers deduce the extent of the adverse selection problem associated with a stock (and set up the bid-ask spread accordingly) by observing how many financial analysts are following that stock. Market makers do this based on the belief that more financial analysts would follow a stock with a greater extent of information asymmetry since the value of private information increases with informational asymmetry. Similarly, financial analysts deduce the profit potential of a stock from the size of the spread set up by market makers (based on the expectation that market makers would set up a greater spread for the stock with a greater information asymmetry). This structural view of the process determining the bid-ask spread and analyst following is empirically tested using a simultaneous equations regression analysis. The empirical results are generally consistent with this view. Hence, our study supports the notion that the decisions of two major players in the financial markets (i.e.. market makers and financial analysts) are made interactively.