Corporate International Diversification and Cost of Equity Capital－Focusing on the Roles of Corporate Governance－

Min, Seung

doi:10.35850/kjta.20.2.03

Cited by 2 publications

(4 citation statements)

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“…The dependent variables, which measure the cost of equity capital, include the PEG, MPEG, GM, and MR. The mean values of cost of equity capital ranges from 0.133 to 0.150, and are consistent with results from previous studies [36]. The median values of R PEG , R MPEG , and R GM are 0.115, 0.129, and 0.132, respectively.…”

Section: Research Modelsupporting

confidence: 90%

“…As financial information disclosure occurs at the end of March, we extracted the analysts' earnings forecast and stock price data from the end of April [34,35]. We also excluded firms that reported a negative book value, because firms with capital impairment could have affected the bias of analysts' earnings forecasts [36]. Furthermore, we introduced the constraint eps2 > eps1 > 0, so that the estimates of R PEG would have a positive root [15,23].…”

Section: Sample Selectionmentioning

confidence: 99%

“…where P t is the stock price per share at time t, dps t is the dividends per share at time t, eps t is the analyst earnings forecast per share at time t, stg t is the short-term earnings growth rate, and r gmt is the cost of equity capital at time t. Equation 6is valid only if A ≡ 1 2 γ − 1 + dps t+1 P t and stg t = (eps t+2 − eps t+1 ) eps t+1 . To reduce the measurement errors in the cost of equity capital estimates in the three models, we present the results calculated from the arithmetic average (r avg ) from the three cost of equity capital (r peg , r mpeg , r gm ) calculations in the main results section [36].…”

Section: Cost Of Equity Capitalmentioning

confidence: 99%

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How Investors Perceive Mandatory Audit Firm Rotation in Korea

Kim¹,

Kim

Lee

et al. 2019

Sustainability

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Credible audit quality is a precondition for a firm’s sustainability. External auditors offer assurance with regard to the uncertain factors that can jeopardize a firm’s sustainability and provide audit opinions that help investors assess risk. After the global crisis and accounting scandals, mandatory audit firm rotation has been implemented globally. However, few studies have investigated either the cost or the benefit of mandatory audit firm rotation. Prior studies provide only indirect evidence on the effects of audit firm tenure on audit quality/perceived audit quality. By discussing prior arguments, we examine how investors perceive the implementation of mandatory audit firm rotation in Korea. Using a unique and direct setting to examine our research question, we analyze the relationship between firms with mandatorily switched audit firms and the cost of equity capital from 2006 to 2008. We find that the mandatory change in the auditors has a negative association with the cost of equity capital. The results are robust to using the arithmetic mean of the cost of equity capital, lagged control variables, and the manufacturing industry effect. The results indicate that investors perceive that mandatory audit firm rotation provides an environment for qualified audits by enhancing auditor independence and skepticism, and thus decreases the cost of equity capital. This study helps to improve our understanding of the impact of mandatory audit firm rotation the information risk evaluations and provides political implications for policy makers by showing the benefit of mandatory audit firm rotation.

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Section: Research Modelsupporting

confidence: 90%

Section: Sample Selectionmentioning

confidence: 99%

Section: Cost Of Equity Capitalmentioning

confidence: 99%

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How Investors Perceive Mandatory Audit Firm Rotation in Korea

Kim¹,

Kim

Lee

et al. 2019

Sustainability

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“…BETA is negative and not significant using any cost of capital measures, a result that is inconsistent with the expectations but consistent with Cha, S., Chung, J., & Yoo, Y. [52], who study the features that affect the cost of equity capital in the Korean market. Next, Panel B of Table 4 shows a larger reduction in the cost of equity capital after XBRL adoption through the VFP for firms with higher information asymmetry.…”

Section: Results Of Empirical Analysesmentioning

confidence: 48%

XBRL Adoption, Information Asymmetry, Cost of Capital, and Reporting Lags

Ra¹,

Lee²

2018

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The voluntary and mandatory introduction of a new information technology, XBRL, in 2006 and 2007 by the Financial Supervisory Services of Korea has significantly affected capital markets, possibly through a reduction in the information asymmetry between firms and users of financial information. This study examines how changes in the information environment attributable to XBRL adoption affect the cost of capital and whether the adoption reduces reporting lags for both voluntary and mandatory filers. Using a 152 firm-year sample, this study finds evidence that the cost of equity capital declined after XBRL adoption, and this decline was greater for voluntary filers with higher information asymmetry. Mandatory filers also experienced incremental reductions in their costs of equity capital after the adoption. Additionally, this study finds evidence that financial reporting lags decrease for both voluntary and mandatory adopters after the adoption. Firms with reduced reporting lags after the adoption experience reduction in cost of capital.

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Corporate International Diversification and Cost of Equity Capital－Focusing on the Roles of Corporate Governance－

Cited by 2 publications

References 0 publications

How Investors Perceive Mandatory Audit Firm Rotation in Korea

How Investors Perceive Mandatory Audit Firm Rotation in Korea

XBRL Adoption, Information Asymmetry, Cost of Capital, and Reporting Lags

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