The Korea discount and chaebols

Abstract

Finance practitioners frequently claim that stocks of Korean firms are undervalued and trade at a discount relative to foreign firms. This phenomenon is commonly called "the Korea discount". It is based on anecdotal evidence comparing either the price-earnings ratios of different market indexes or those of different individual stocks. This paper provides empirical evidence on the existence of such a discount using a large sample of stocks from 28 countries over the period 2002-2016. We find that Korean stocks have significantly lower price-earnings ratios than their global peers. We also investigate the role of large business groups called chaebols, which are often considered to be the main cause of the discount because of their poor corporate governance. Our findings show that it is not the case.

Effects of presidential elections on accounting conservatism: Evidence from South Korea

“…Following the International Monetary Fund's (IMF) bail out in 1997, Korean capital markets have experienced fundamental changes, including the accounting systems. Therefore, to be consistent with other Korean‐based studies (e.g., An, 2015; Dibooglu & Cevik, 2016; Ducret & Isakov, 2020; Kim et al., 2014; Pyo, 2021), we construct our sample with a starting date set from 2000. Panel A of Table 1 summarizes the PEs during the 2000–2018 period.…”

“…Furthermore, Korea's institutional environment is normally characterized as a low-quality legal system offering a weak investor protection (Ball et al, 2003(Ball et al, , 2010Bushman & Piotroski, 2006). Meanwhile, extant literature has shown that Korean government and ruling party' policy significantly affect firms' operations (e.g., Chiu et al, 2005;Ducret & Isakov, 2020;Kim, 2021;Song et al, 2014). For example, Chun et al (2023) document that Korean private firms are likely to increase the corporate donation when the incumbent government is progressive party rather than conservative party.…”

“…Accounting conservatism is expected to reassure outsiders such as debtholders and credit rating agencies during periods of uncertainty by reflecting bad news much earlier than good news in income statements (Watts, 2003a(Watts, , 2003b. However, extant literature (e.g., Ball et al, 2000Ball et al, , 2003Bushman & Piotroski, 2006;Chui et al, 2005;Ducret & Isakov, 2020;Kim & Yi, 2006;Kim et al, 2014;Shawn et al, 2019) has implied that PEs could adversely affect Korean firms' conservatism due to Korea's poor institutional and informational environment. Under these circumstances, Korean managers may be incentivized to suppress the flow of bad news during important political events (Piotroski et al, 2015).…”

“…However, extant literature (e.g., Ball et al., 2000, 2003; Bushman & Piotroski, 2006; Chui et al., 2005; Ducret & Isakov, 2020; Kim & Yi, 2006; Kim et al., 2014; Shawn et al., 2019) has implied that PEs could adversely affect Korean firms’ conservatism due to Korea's poor institutional and informational environment. Under these circumstances, Korean managers may be incentivized to suppress the flow of bad news during important political events (Piotroski et al., 2015).…”

Exploring the effects of demographic transitions in Korea on migrant worker usage

“…Examples of Chaebol include Samsung, Hyundai, SK and Lotte. These companies were the engines of growth behind Korea"s fast development throughout the 1970s and 1980s, and they continue to play a pivotal role in the economy (Ducret & Isakov, 2019). There is a strong connection between the national pride of Korea and the success of these companies, especially for older generations (Uttam, 2019).…”