Agency Costs And Corporate Financial Policies: A Simultaneous Equations Approach

Financial economists have devoted great attention to corporate financial policies, such as the firm’s capital structure. It is also understood that these policies are not determined independently, but jointly with other corporate policies such as dividend policy and ownership structure. The purpose of this paper is to incorporate the pension funding decision into this policy mix. The design and administration of a firm’s pension fund affects the firm because of the size and risks of the pension fund. The degree of funding of a defined benefit plan affects the value and risk of a company’s common shares. This paper simultaneously explains leverage, dividend policy, ownership structure, and pension funding using several independent variables that, based on agency theory, should affect these policies. The results are significant and reinforce the notion of simultaneous determination of corporate policies

Pricing Accuracy of Put-Option Valuation Models: Directional Bias Due to Risk Free Interest Rates

The classical Black-Scholes formula reveals systematic biases in valuation of option prices (Geske and Roll 1984 and reference therein). Heo et al. (2015) also found the existence of similar biases in fractional quadratic option pricing models. These observed pricing biases depend on moneyness, the time to maturity, and volatility of underlying assets. Recently, we have noticed that pricing bias is also seemingly influenced by interest rates. This study compares pricing accuracy across several put option models and investigates pricing biases caused by risk-free LIBOR using daily data of Yahoo put options traded in CBOE from February 2005 to February 2015

Stock market reactions and firm performance surrounding CEO succession: antecedents of succession and successor origin

This study investigates the effects of CEO succession on the stock and financial performance of large publicly held corporations over the years 1977-1994. Using a market signaling framework, this study examines how the stock market responds to the expected financial performance of the firm at the announcement of CEO succession. The impact of successor origin of the CEO on the financial performance of the firm is also investigated. Findings indicate that the stock market responded more favorably to the announcement of succession caused by unanticipated events than to announcements of anticipated succession. Although successions resulted in significant improvement in some aspects of financial performance, the findings could not be generalized across all financial performance measures. However, those firms with inside CEO succession performed generally better than those firms utilizing outside succession with respect to operations and profitability

Corporate leverage strategy in an emerging market

This study empirically investigates whether the introduction of a new corporate governance system in the Korean economy (where controlling shareholders dominate business groups and corporate-bank relationships are prominent) affects corporate leverage strategies. We find evidence suggesting that improved corporate governance, measured by appointments of outside directors and controlling shareholder’s ownership, constrains corporate borrowing. Chaebol firms, on average, have higher levels of borrowing than stand-alone firms. However, the largest chaebols, who are heavily involved in multinational ventures, showed the opposite trend, ostensibly due to more diversified business opportunities and sources of financing available in international markets. This suggests that government policies designed to improved corporate governance among “average” chaebols may be ineffective (or only partially effective), because such policies do not account the heterogeneity that exists across chaebols. Lastly, we find that intragroup transactions among affiliates increase corporate borrowing, but they are not consistently related to chaebol borrowing as a whole.Griffith Business School, Department of International Business and Asian StudiesFull Tex