No abstract

This paper investigates the cost-effectiveness of the wood pellet fuel relative to fossil fuels such as Liquefied Natural Gas (LNG) under carbon emission trading system which is scheduled to be effective in Korea in 2015. Without carbon emission trading system, the high cost of initial investment needed for the wood pellet boiler hampers its cost-effectiveness relative to LNG. Since, however, the wood pellet is carbon-neutral, the introduction carbon emission trading system generates additional cash flows from selling CER in the market. The comparison of the net present values reveals that the economic feasibility of the wood pellet is greater than that of LNG if CER can be traded in the market. The results remain robust under the sensitivity analyses with respect to various price estimates of CER and social discount rates. Our results suggest that the introduction of the emission trading system should provide corporations with incentives to invest in the eco-friendly wood pellet fuel.

Literature documents that executives' inside debt holdings (debt-based managerial compensation) such as defined-benefit pensions and retirement funds are often unfunded and unsecured and have long maturities, and thus provide managerial incentives to pursue strategies to avoid the overall firm risk. This study investigates the effect of managerial inside debt compensation relative to equity-based compensation on a firm's dividend payout policy. We find that a inside debt holdings are positively associated with various measures of a firm's dividend payout policy. Additionally, we find empirical evidence in firms with inside debt holdings that the inverse relationship between high default risk measured by KZ index and dividend payout weakens as the portion of inside debt relative to equity-based compensation rises. This finding indicates that the needs for the firm to restrain dividend payouts to equity holders is reduced as the executive's debt-to-equity compensation ratio becomes larger. Overall, the results suggests the mitigating effect of executives' inside debt holdings on the conflicts between bondholders and shareholders can lead to generous payout policy.

In 2002, variable annuities were introduced in South Korea and have shown enormous success since then. They are life-insurance products with investment guarantees. Variable annuities allow policyholders to allocate premiums into a wide range of investment vehicles such as stocks, bonds, money market instruments, or some combinations of them. Due to the investment guarantee which is called guaranteed living benefits (GLBs), the benefit is always the greater of (1) the account value of the policyholder investment and (2) the guaranteed amount. Life insurance companies set aside reserves for the guarantees in the general account. Just as the account value depends on the performance of investments, VA lapses also rely on the performance of investments. For example, policyholders will not terminate the contracts when account value is way lower than the guaranteed amount. Considering that lapses determine the total benefit of VAs that a insurance company should pay, calculating risk margin for lapse is a key issue in the VA business. In this study, risk margin for VA lapses is estimated with Wang transform suggested by Wang (2000, 2002).

This paper provides a case analysis to examine impacts of carbon cost incurred by ETS(Emission Trading System) on the incentives of economic entities to invest in eco-friendly facility. We estimate the present value of the savings of the energy cost(PVS) of ECC building of Ewha Womans University relative to a traditional building for the analysis of the economic value of eco-friendly facilities. Increases in electricity price due to the pass-through effect of carbon costs are taken into consideration to estimate PVS. We first find that PVS increases as the rate of pass-through increases. However, this increase is less prominent as the pass-through is delayed as a result of the governmental effort to reduce the carbon cost. The results suggest that ETS may increase incentives to invest in eco-friendly facilities and the increase in the incentives is greater as the pass-through is prompt and the rate of the pass-through is higher.