The Impact of Affinity on World Economic Integration: The Case of Japanese Foreign Direct Investment

This paper finds that a country’s affinity with a foreign country has a positive effect on foreign direct investment flows from it to that country, by analyzing Japanese foreign direct investment outflows during the period of 1995 to 2009. A rise in affinity between countries is thought to enhance their mutual trust and as a result lower the transaction costs of economic activities between them, thereby helping to promote bilateral foreign direct investment flows. These findings imply that a rise in affinity among countries is likely to facilitate international economic integration.JEL Classification Codes: F2Embargo Period 24 monthshttp://www.grips.ac.jp/list/jp/facultyinfo/chey_hyoung-kyu

Do firms engage in earnings management to improve credit ratings?: Evidence from KRX bond issuers

In this paper, we examine the relationship between credit ratings, credit ratings changes and earnings management. Since the 1997 Asian Financial Crisis, many listed firms collapsed, leading investors to suffer losses. As a result, credit ratings have become a very important indicators of firms’ financial stability for investors, government agencies and debt issuers and other stakeholders. Firms with a similar credit rating are grouped together as firms of similar credit quality (Kisgen 2006) because credit ratings provide an ‘economically meaningful role’ (Boot et al. 2006). Numerous studies find that managers care deeply about their credit ratings (Graham and Harvey 2001; Kisgen 2009; Hovakimian at al. 2009). Firms that borrow equity in the form of bonds may have incentives to increase credit ratings with opportunistic earnings management. A change in a firm’s credit ratings has a direct impact on a firm’s profitability. Firm’s benefit from better terms from suppliers, enjoy better investment opportunities and have lower cost of capital when their credit risk is lower. Firms incur a higher cost of debt and experience additional costs when their credit risk is higher. American studies find that firms use earnings management to influence credit ratings (Ali and Zhang 2008; Jung et al. 2013; Alissa et al 2013). Credit rating agencies have stated they assume financial statements to be reasonable and accurate (Securities and Exchange Commission, 2003; Standard and Poor’s, 2006) and they do not consider themselves to be auditors. They take the information in the financial statements as accurate. Therefore, there is a potential for managers to engage in earnings management to influence credit ratings. In South Korea, there have been numerous experiments with auditor legislation because of financial collapses due to earnings management in the 2000s. Therefore, a decomposition of the relation between opportunistic earnings management and credit ratings is an important consideration for Korean accounting academia. Previous Korean studies have examined whether credit ratings in period t are significantly related to level of earnings management in the same period; however, those studies fail to find the consistent results. It is widely known that credit rating agencies allow one year credit watch period to assess default risk before credit rating decision. Firms with an incentive to increase their credit ratings through earnings management will only realize if earnings management positively influences credit ratings in the following year. Therefore, we focus on establishing a relationship between the levels of earnings management at time t and credit ratings / changes at time t+1. Our study provides a more robust analysis by establishing if both accrual based and real earnings management in period t influences credit ratings and credit rating changes in period t+1. Using a sample of 1,717 Korean KRX firm-years from 2002 to 2013, we find a negative relation between earnings management in period t and credit ratings in period t+1, suggesting that firms with higher credit ratings have lower levels of earnings management. Moreover, we find that firms that experience a credit ratings change in period t+1 are less likely to engage in opportunistic earnings management in period t, suggesting that firms do not have the potential to increase credit ratings. We also find that firms that experience a credit rating increase in period t+1 have a negative association with opportunistic earnings management for accruals measures. Moreover, when we split our sample into firms that experience 1) a credit rating increase, 2) decrease and 3) remaining the same, we find that firms that engage in earnings management are more likely to remain unchanged or experience a credit rating decrease. Thus, taken together, we find no evidence of relationship between opportunistic earnings management and an increase in credit ratings in the South Korean public debt market. Our results may be of interest to regulators, credit rating agencies, market participants and firms that question whether level of earnings management in current year influences credit ratings in the subsequent period

EMPOWERING CITIZENS’ VOICES IN THE ERA OF E-GOVERNMENT: IMPLICATIONS FROM SOUTH KOREAN CASES

The rise of the Internet sparked an intense debate on the democratic potential of information and communication technologies (ICTs). This research illustrates how web technologies enable ordinary citizens to articulate their interests in policy processes and enhance the organizational intelligence of local governments. The two South Korean cities introduced in this article adopted internet applications that allowed citizens to contact public officials or city mayors directly, resulting in dramatic increases in online civic input into local governance. Citizens’ political efficacy was encouraged both by government feedback and by the system that enabled their evaluation of the feedback. Despite the substantive contributions of the applications to local governance, formalistic responses from some public officials indicate challenges in building citizens’ trust in government through the use of ICTs. To address the challenges, it is necessary to cultivate the innovative leadership of senior public mangers and develop the institutional mechanisms encouraging public officials’ sincere responses to citizens’ online requests.E-government, Internet, Citizen Participation, Civic Engagement, Urban Governance.

Sharing, Liking, Commenting, and Distressed? The Pathway Between Facebook Interaction and Psychological Distress

Studies on the mental health implications of social media have generated mixed results. Drawing on a survey of college students (N=513), this research uses structural equation modeling to assess the relationship between Facebook interaction and psychological distress and two underlying mechanisms: communication overload and self-esteem. It is the first study, to our knowledge, that examines how communication overload mediates the mental health implications of social media. Frequent Facebook interaction is associated with greater distress directly and indirectly via a two-step pathway that increases communication overload and reduces self-esteem. The research sheds light on new directions for understanding psychological well-being in an increasingly mediated social world as users share, like, and comment more and more.Radio-Television-Fil

Does conditional conservatism affect credit ratings? An analysis of Korean KRX bond issuers

We examine whether there is a relationship between conditional conservatism and credit ratings. Credit rating levels are the ‘opinion‘ of credit rating agencies about a firm’s default risk based on financial statements data and corporate governance information. In South Korea, credit rating levels are issued by National Information & Credit Evaluation (NICE), Korea Investor Services (KIS), Korea Ratings (KR) and Seoul Credit Rating & Information (SCI), and are used by bond investors, debt issuers, and governmental officials for decision making and legislative purposes. Accounting practices such as conditional conservatism have the potential to signal low default risk and financial stability. Accounting conservatism reflects a manager’s tendency to recognize “bad news” in a timelier manner than “good news” (Basu, 1997). The academic community continues to debate the merits of conservatism. However, the majority of studies suggest that conditional conservatism is an accounting practice with the potential to increase accounting quality (Watts, 2003; Roychowdhury and Watts, 2007; Ball and Kothari, 2008). In the U. S., numerous studies find an association between level of conservatism and credit ratings (Ahmed et al., 2002; Moerman (2006); Nikolaev (2007); Bauwhede (2007): Zhang, 2008; Peek 2010). Therefore, in the U.S., there is evidence to suggest that credit ratings agencies care about conditional conservatism as an accounting practice with the potential to influence default risk. In South Korea, there is evidence of a positive relation between accounting conservatism levels and credit ratings (Park et al., 2011). However, the association between credit rating changes and financial conservatism is a question left unanswered. Our motivation is to address this caveat. To our knowledge, our study is the first to analyze the association between conditional conservatism and credit ratings and credit rating changes using the two most popular conditional conservatism measures. We contribute to the literature by providing an evidence that conditional conservatism may influence a credit rating agency’s perception of default risk. We examine if conditional conservatism is associated with credit ratings based on the following; conditional conservatism is an accounting practice associated with reducing a manager‘s ability to 'inflate' net income; hence, constraining dividend has the potential to reduce a credit rating agency’s perception of risk. Credit rating agencies issue higher credit ratings to firms with lower default risk. Thus, because firms care deeply about maintaining or increasing their credit ratings, conservative reporting should have a positive a relation with credit rating levels / credit ratings changes. We perform numerous tests to establish the relation between conditional conservatism and credit ratings / credit rating changes. We investigate the relationship between a firm's credit ratings / credit ratings changes and conditional conservatism using a KRX firm sample of 1,310 firm-years from 2002 to 2013. First, we establish the levels of conditional conservatism using the accruals based Ball and Shivakumar (2005) and the market based Basu (1997) models. The results suggest that firms borrow equity in the form of public debt are conservative, consistent with previous studies. Next, we use a dummy variable approach to examine the relationship between conservatism and credit ratings for investment / non-investment grade firms. We find that investment and non-investment grade firms have statistically insignificantly different levels of financial conservatism. Thirdly, we test if conditional conservatism has a statistically significant relation with credit rating changes. We find that firms that experience an increase or a decrease in their credit rating levels from period t to t+1 are marginally more conservative compared to firms with consistent credit rating levels. Next, we test the relation between conditional conservatism and credit rating increases. Firms with higher levels of conservatism may benefit from a credit rating increase because an increase in conservatism indicates lower risk. We use a dummy variable approach to capture if conservatism in period t has the potential to influence a credit rating period in t+1. We do not find a statistically significant relation between conservatism and credit ratings for our entire sample. However, we find that there is a positive relation between conservatism in period t and a credit rating increase in period t+1 for investment grade firms. Credit ratings have significant implications for a firm’s access to capital. Firms below the investment grade level (BBB+ and below) are expected to face higher capital costs and face limited access to investor equity because of legislative restrictions compared to firms with investment grade bonds (A- to AAA). Credit ratings agencies may reward financially conservative firms above the investment grade threshold with a credit rating’s increase because conditional conservatism is considered an important risk metric for firms above the investment grade. Other metrics may be more critical to firms below the investment grade cut-off. Finally, we perform robustness checks for our main hypothesis. We find that firms that experience a credit rating increase in period t+1 have statistically significantly higher levels of conservatism in period t compared to firms experience a credit rating decrease or remain constant in period t+1, supporting our previous findings. Taken together, our results suggest that credit ratings agencies consider conditional conservatism when issuing credit ratings. Firms with higher credit ratings are generally more conservative. Moreover, conditionally conservative firms above the investment grade threshold can be rewarded with a credit rating increase

A family of pseudo-Anosov braids with large conjugacy invariant sets

We show that there is a family of pseudo-Anosov braids independently parameterized by the braid index and the (canonical) length whose smallest conjugacy invariant sets grow exponentially in the braid index and linearly in the length and conclude that the conjugacy problem remains exponential in the braid index under the current knowledge.Comment: 16 pages, 6 figure