Search

This study investigates the impact of institutional investors on firm value, concentrating specifically on the role of institutional monitoring by nationality in long-term investor-value appropriation (LIVA). The findings reveal a significant positive correlation between domestic institutional ownership and LIVA. Moreover, the presence of independent domestic institutional investors accentuates the strength of this relationship. Notably, this study demonstrates that domestic institutional monitoring significantly impacts firms with high information asymmetry, thus underscoring the monitoring costs associated with geographic distance. In summary, it reinforces the existing body of evidence supporting the monitoring function of domestic institutional investors in influencing firm decisions. It elucidates the variations in long-term firm value by delineating the distinct monitoring roles of domestic and foreign institutional investors. • This study revisits whether institutional investors play a role in enhancing firm value. • We focus on the effect of institutional monitoring by nationality on long-term investor value appropriation (LIVA). • We document the significantly positive relationship between domestic institutional ownership and LIVA. • The results is more evident when firms are owned by more independent domestic institutional investors. • This study highlights the monitoring role of domestic institutional investors on long-term firm value. [ABSTRACT FROM AUTHOR]

• This paper proposes female CEOs' overconfidence and risky behavior stem from gender stereotype threats. • We empirically show that female CEOs in the North, where there is less gender stereotyping, tend to overinvest relative to male CEOs. • Female CEOs from the North tend to take more risks even when dealing with market volatility and uncertainty. • Such risky behaviors do not deteriorate firm value but, instead, possibly improve firm performance. This paper proposes female CEOs' overconfidence and risky behavior stem from gender stereotype threats. Using two subsamples from Vietnam—firms in the Northern and Southern regions—we empirically show that female CEOs in the North, where there is less gender stereotyping, tend to overinvest relative to male CEOs. However, in the South, they are indifferent. Additional analysis reinforces the main finding that female CEOs in the North tend to take more risks even when dealing with market volatility and uncertainty (e.g., the COVID-19 pandemic). Such risky behaviors do not deteriorate firm value but, instead, possibly improve firm performance. [ABSTRACT FROM AUTHOR]

The extant literature largely assumes active institutional monitoring as a main channel through which institutional investors restrain earnings management. However, because the Korean market is dominated by family-oriented chaebols with deficient corporate governance, we believe that passive institutional monitoring is more feasible. Using institutional portfolio turnover as a proxy for the degree of passive monitoring, we assume that institutions with higher turnovers pose a more credible threat of selling-off, thereby inducing managers to act in shareholders’ interest. Extending the research supporting the informational advantage of domestic institutions, this study presents empirical evidence that domestic institutions that perform passive monitoring are most effective in curbing earnings management in the Korean market. [ABSTRACT FROM AUTHOR]

This study develops a model of CAPM betas (true betas) in an incomplete market version of a security market line (SML), and these are compared to the CAPM betas (perceived betas) in a traditional SML. In addition, based particularly on the Korean stock market, we empirically discover that true betas tend to diverge from the perceived betas, especially when the perceived betas are greater than one. Moreover, the distribution of perceived rather than true betas tends to be more centered around one. Overall, this study provides new insight into the CAPM in an incomplete market. [ABSTRACT FROM AUTHOR]

We argue that the relative effectiveness of active and passive blockholder monitoring is driven by the institutional context of the Korean financial market, characterized by the dominance of chaebols and the pressure sensitivity of institutional blockholders. We believe that the extensive business ties between chaebols and blockholders effectively increase the cost of shareholder activism in Korea, making passive monitoring a more applicable governance mechanism for blockholders. We test whether passive monitoring affects a firm's earnings quality, represented by earnings persistence, value relevance, and timeliness. Furthermore, we decompose institutional shareholding by portfolio turnover and nationality and then determine the monitoring channel that influences earnings quality. We find that passive monitoring by domestic blockholders is most effective in improving earnings quality in Korea. In addition, our findings highlight that the difference between the institutional context of developed economies and that of Korea results in different outcomes related to blockholder monitoring. • Blockholder monitoring is driven by the institutional context of the Korean financial market. • The Korean market is characterized by the dominance of chaebols and the pressure-sensitivity of institutional blockholders. • We test whether passive monitoring affects a firm's earnings quality. • We find that passive monitoring by domestic blockholders is most effective in improving earnings quality in Korea. • Our findings highlight that the difference between the institutional context of developed economies. [ABSTRACT FROM AUTHOR]

Marketing increases firm value; therefore, it is imperative to determine the factors affecting corporate marketing decision processes. Considering that the current understanding of these factors is limited, this study examines institutional investors' effects on Korean firms' marketing decisions by focusing on advertising spending. We present evidence that institutional investors may play a significant role in such decisions. Further, our results indicate that domestic institutional investors negatively influence advertising spending. In contrast, foreign institutional investors positively impact advertising spending regardless of their investment horizon. These results highlight the influence of external institutions' characteristics in firms' marketing decision processes. • A firm's management does not solely determine its marketing decisions. • External governance affects firms' advertising decisions. • External institutional characteristics influence firms' marketing decisions. • Institutional investors significantly influence institutional marketing spending. [ABSTRACT FROM AUTHOR]

This study provides a model explaining how small changes in asset prices may disrupt an entire financial market. Based on the capital asset pricing model (CAPM), our model implies that during a market crash, asset price changes affect the relative distribution of the CAPM betas of individual assets and force all tradable assets to co-move. Using US stock market data, our empirical results are consistent with the model's predictions. Overall, the study aids understanding of the price patterns of assets during substantial market downturns, such as financial crises. • This study proposes a model to show that small changes in asset prices can abruptly shrink a financial market. • Based on the capital asset pricing model (CAPM), we show that economic shocks affect the relative distribution of CAPM betas and cause asset prices to free fall at the same speed. • Using US stock market data, we validate the model's implications. • Our model provides new insights to aid understanding of asset price movements during a market crash. [ABSTRACT FROM AUTHOR]

We examine the effect of related party transactions on corporate environmental responsibility and find that firms with more related party transactions tend to have more controversial environmental reports, less emissions reduction, and less environmental expenditures. This relationship is more significant for firms with a high investment-cash flow sensitivity and those with a low ESG score. Overall, the results corroborate the hypothesis that the marginal costs of corporate environmental responsibility outweigh the benefits for financially constrained firms, thus deterring these firms from engaging in corporate environmental responsibility activities. [ABSTRACT FROM AUTHOR]

• We examine firm-level activities and characteristics that mitigate the impact of political risk on firm investment. • Firms with higher political exposure and political risk spend less on capital investment. • Political lobbying effectively reduces the negative impact of political exposure and political risk on corporate investment. • The negative relationship between firm-level political risk and corporate investment is affected by certain firm activities and characteristics. Extant literature shows that firms reduce their capital investment in response to political risk. We examine firm-level activities and characteristics that mitigate the impact of political risk on firm investment. First, we empirically investigate the relationship between firm-level political risk and future investment, showing that firms with higher political exposure and political risk spend less on capital investment. Next, we examine the mechanisms behind the negative relationship between firm-level political risk and corporate investment. We find that political lobbying effectively reduces the negative impact of political exposure and political risk on corporate investment. In addition to corroborating the key findings documented in the literature that firms react to political risk by cutting investment, we show that this relationship is affected by certain firm activities and characteristics. [ABSTRACT FROM AUTHOR]

• Noise traders are known to create unhedgeable risks. • Individuals are suspected of suboptimal and uninformed trading decisions. • The individual trading weight proxies for noise trader risk in stock trading. • Individual traders undermine the relative valuation of listed firms in Korea. • The result is robust after controlling for various other factors. Studies find that noise traders create unhedgeable risks, and individuals have long been suspected of making suboptimal and uninformed trading decisions. Recent arguments suggest using the individual trading weight to proxy for noise trader risk when pricing common and preferred stocks in emerging markets. We empirically corroborate that individual traders undermine the relative valuations of listed firms in South Korea. This result is robust to controlling for corporate governance, institutional monitoring efforts, firm size, accounting ratios, idiosyncratic volatility, liquidity measures, and endogeneity. [ABSTRACT FROM AUTHOR]

• Firms with high ratio of institutional investors manage earnings using accruals. • Such firms may exaggerate or reduce their earnings based on managerial needs. • Given few growth opportunities, institutional investors prefer short-term gains. This study investigates whether the effectiveness of institutional monitoring varies with economic conditions in Korea, an emerging market. We analyze the impact of the institutional trading activities on corporate earnings management. In particular, we examine whether the association between the two varies with the economy's expectation of market growth (based on the prevailing expectations before and after the 2008 financial crisis). The results show that firms with a high intensity of institutional investor trading tend to manage their earnings using accruals. In addition, in a market with low growth prospects, less effective institutional monitoring increases the likelihood of opportunistic earnings reporting by management. [ABSTRACT FROM AUTHOR]