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Sociologists have been investigating financialization over the past two decades. Shareholder value orientation has been named as one of the central driving forces for financialization in the US. However, financialization also takes place in countries that do not have a strong shareholder value orientation. What drives financialization in these countries? In this article the authors analyze data for Korea, where the power of shareholders is particularly subdued, and present two findings. First, financialization is an unintended consequence of the state's pressure on family-owned conglomerates to comply with the Western standard imposed by the IMF during the economic crisis. In the absence of strong shareholders, it was the interplay between the state's demand to modernize corporate funding practices and the conglomerates' apparent compliance while minimizing their financial liability. Second, the authors investigate the role powerful unions have in financialization. Previous studies have theorized that unions would have negative effects on financialization, only to come up with mixed results. Using Korean data, this article reveals that in a setting where the political and organizational power of unions is strong, unions have clear negative effects on financialization. The authors suggest that the standard story of financialization, according to which the mighty shareholders push firms to pursue short-term profit, is only one of many possible paths toward it. [ABSTRACT FROM AUTHOR]

Japanese and Korean financial systems are distinct from those in the western economies. Considering this, we examine how the dividend policy of the firms in two of the largest economies of East Asia is determined by the internal attributes of firms. Firm-level data from 1,773 Japanese and 1,035 Korean firms were evaluated using panel data techniques, and some interesting similarities and differences in the dividend policies of both countries were unearthed. For example, in both countries, larger firms pay higher dividends, whereas those firms with volatile earnings pay low dividends. It was also determined that Korean firms pay more dividends when their profitability surges. On the other hand, cash dividends in Japanese firms decline when there is an increase in their profitability level. Overall, the dividend policy of Korean firms resembles more to those in Anglo-Saxon countries, while the dividend policy of Japanese firms bears little resemblance to other established financial systems. This study is the first to compare and contrast the internal dynamics of dividend policy for both the Japanese Keiretsus and Korean Chaebols while evaluating a huge universe of firms from both countries. Transnational studies are important to draw parallels and differences. The findings of this study offer important implications for various stakeholders, including managers, investors, and policymakers. Also, the results pave the way for a theoretically enriched understanding of dividend policy by comparing and contrasting diverse financial systems. [ABSTRACT FROM AUTHOR]

Accounting for financial instruments has been subject to much controversy, particularly accounting practices related to derivatives held for hedging purposes. For cash flow hedges, poor matching may result when fair-value accounting is prescribed for the hedging instrument and historical cost is prescribed for the assets that generate the “highly probable forecast transaction” to be hedged. Fair-value accounting may therefore induce excess variations in earnings, which could make a firm appear to be more risky than it actually is. The alternative to fair-value accounting offered by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) to firms with hedging programs, hedge accounting, is allowed only if the designated hedge passes a test for prospective hedge effectiveness. We develop a model for the prospective hedge effectiveness of cash flow hedges and find that the “highly effective” criterion of the FASB and IASB fails to recognize the scope of variation of the hedge effectiveness of pure hedges for different types of risk exposures. Prospective hedge effectiveness is not a reliable signal of a speculative component in a derivative portfolio and, consequently, the current “highly effective” screening mechanism cannot effectively separate pure hedges from derivative portfolios that are partly or fully influenced by speculation. We link these and other findings to the current efforts of the FASB and IASB to reform accounting for financial instruments. [ABSTRACT FROM AUTHOR]