Keunkwan Ryu

Group Duration Analysis of the Proportional Hazard Model: Minimum Chi-squared Estimators and Specification Tests

Abstract This article develops a semiparametric, minimum chi-squared estimation method of the proportional hazard model for the case when durations are grouped and covariates are categorical. The proposed estimator is easy to compute, yet asymptotically as efficient as the maximum likelihood estimator. This article also suggests simple specification tests for the proportional hazard model. If proportionality holds, then two sets of minimum chi-squared estimators, one from a further grouped data and the other from the original grouped data, will converge to the same quantity; otherwise, they will not. Therefore, a test of the equality of these two sets of estimators will offer a test for proportionality. Monte Carlo simulations demonstrate the performance of these estimators and specification tests. In addition, two real data applications illustrate the implementation of the suggested methods and the contexts in which these methods are useful.

Management Ownership and Firm's Value: An Empirical Analysis Using Panel Data

Demsetz and Lehn (1985), Morck, Shleifer, and Vishny (1988), and McConnell and Servaes (1990) report different empirical findings regarding ownership structure and corporate profitability. In this paper, we re-estimate the relation between management ownership and firms value after controlling for the history of management ownership as well as inter-firm differences using panel data. Further, we consider the possibility that the current ownership structure is jointly determined with the firm value, an endogeneity argument a la Demsetz (1983). We find that history of the management ownership, not its current level, matters in determining the firm value, which is consistent with information asymmetry arguments.

Changing Performance of Business Groups over Two Decades: Technological Capabilities and Investment Inefficiency in Korean Chaebols

This article differentiates itself from the large volume of existing literature on business groups, such as Korean chaebols, in several aspects. First, it uses productive efficiency rather than financial efficiency as a performance measure. Second, it defines chaebols in three alternative ways and checks whether the results are robust. Third and most important, it explains the sources of the post‐crisis change in the performance of Korean chaebols in terms of technological capabilities and investment inefficiency. This study finds that chaebols have become more efficient than non‐chaebols in the post‐crisis period compared with the pre‐crisis period, that inefficiency in investment has always been critical in determining productive inefficiency, and that after the 1997 financial crisis Korean chaebols have improved their performance by reducing investment inefficiencies and enhancing technological capabilities. The results of this study are consistent with the often‐acknowledged advantages of business group firms: first, technological capabilities can be shared among affiliated firms; and second, technological capabilities can be combined with project‐ or entry‐execution capability. This article also shows that, with globalization and liberalization, technological capabilities have emerged to be more important in recent years than in the past when what was more important was exploiting market imperfections and artificial rents.

An Extension of Marshall and Olkin's Bivariate Exponential Distribution

Abstract This article extends Marshall and Olkins bivariate exponential distribution such that it is absolutely continuous and need not be memoryless. The new marginal distribution has an increasing failure rate, and the joint distribution exhibits an aging pattern. It offers an advantage in separately identifying the shock arrival rates and their impacts. Regarding estimation of the model, both maximum likelihood and method-of-moments-type estimation are considered. The former is more efficient but computationally more demanding, whereas the latter is simpler in computation but less efficient. The trade-off between computational burden and efficiency is gauged through Monte Carlo simulations, and it turns out to be favorable for the method-of-moments-type estimation.

Analysis of a continuous-time proportional hazard model using discrete duration data

Many economic duration variables are often available only up to intervals, and not up to exact points. However, continuous time duration models are conceptually superior to discrete ones. Hence, in duration analyses, one faces a situation with discrete data and a continuous model. This paper discusses (i) the asymptotic bias of a conventional approximation procedure in which a discrete duration is treated as an exact observation; and (ii) the efficiency of a correct maximum likelihood estimator which appropriately accounts for the discrete nature of the data.

Structural duration analysis of management data

Abstract In this paper, duration data are viewed as being generated jointly by a natural mechanism and an economic agents optimizing behavior. Between the two competing forces only the force which comes first is realized as an observed duration, with the source identified. This paper uses a structural approach to derive explicitly the joint distribution of the two duration variables, providing a structural economic motivation for the continuous-time competing-risks model. Issues of estimation and identification are discussed. A small simulation study examines properties of the model and the parameter estimators.

Monotonicity of the Fisher information and the Kullback-Leibler divergence measure

Abstract Many economic variables are often reported only up to intervals, and not up to exact points. This paper proves that as the data information gets richer in the sense that the data partition gets finer, both the Fisher information and the Kullback-Leibler divergence measure increase monotonically, approaching their continuous counterparts, respectively. This monotonicity property offers a valuable insight into designing an optimal number of cells to increase the power of specification tests based on cell counts.

Plastic Surgery: Investment in Human Capital or Consumption?

Beauty has been shown to be valuable in many markets and supposedly can be improved through plastic surgery. This raises the question of how effective plastic surgery is in improving a person’s beauty and economic outcomes. We find empirical evidence that while people improve their facial beauty through plastic surgery, the associated monetary benefits from beauty premiums in labor and marriage markets are not high enough for most men and women to recover the surgery costs. This finding suggests that plastic surgery may be justified in terms of consumption rather than as investment in human capital.

Analysis of Loan Guarantees among the Korean Chaebol Affiliates

This paper analyses corporate loan guarantees among the Korean chaebol affiliates. Loan guarantees are found to be efficiency‐neutral under a set of ideal conditions characterized by perfect and symmetric information, no agency problem, and no governmental interference in private financial contracts. In reality though, corporate loan guarantees have negative as well as positive effects. The negative effects of loan guarantees arise from the agency problem between the controlling minority shareholders and outside investors. Governments implicit support to financial institutions worsens the problem. Without such distortions, a loan guarantee by the guarantor firm may signal the quality of the investment project of the borrowing firm, if the guarantor firm has more information than the lending bank with regards to the type of the borrowing firms investment project.

Yes-Men and No-Men: Does Defiance Signal Talent?

We provide the rationale for the existence of yes-men and no-men in an organization or a group. On one hand, a person is inclined to conform to the instruction of another, because he cannot ignore the information contained in the instruction, even though his own evidence contradicts the instruction. On the other hand, if only the person himself knows the accuracy of his own information, he may tend to disobey the instruction, to make others believe that he is able in the sense that his information is accurate. We demonstrate that disobedience can signal high ability in an equilibrium.