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본 논문은 Adrian and Franzoni(2005)가 개발한 학습 자본자산가격결정모형(learning CAPM)을 재고찰한다. Adrian and Franzoni(2005)의 모형은 변수오차(errors-in- variable), 생략변수(omitted-variable) 문제로 인한 모형의 내생성을 무시하였는데, 본 논문에서는 설명변수와 오차항 사이에 상관관계가 존재할 경우에 적용할 수 있는 Kim (2006)의 방법론을 대안으로 제시하여 모형 설명력의 개선 여부를 고찰한다. 본 연구의 실증분석 결과는 아래와 같다. 첫째, Hausman(1978)의 내성성 테스트에서 시장초과수익률과 오차항 사이에 뚜렷한 상관관계가 존재하므로 Kim(2006)의 방법론을 정당화한다. 둘째, 제시된 모형에서 소형-가치주는 1.62, 대형-성장주는 0.94로 시장베타의 평균이 각각 추정되어 소형-가치주에 대해 체감하는 위험이 대형-성장주에 비해 상대적으로 높았으며 이는 소형-가치주의 높은 기대수익률을 정당화한다. 셋째, 제시된 모형의 설명력이 Adrian and Franzoni(2005)의 모형에 비해 전반적으로 개선되었으며, 특히 가중가격오차(CPE)가 약 49% 감소하였다.
This paper analyzes the role of controlling shareholders in corporate wage decisions. Even though existing theories have argued for the positive role of controlling shareholders who own substantial portions of voting shares, there have not been many theoretical or empirical papers that specifically identify or confirm their roles in corporate management. If any, existing papers analyze the relationship between managerial ownership and firm value or firm performance. However, the causal relationship is not easily testable, and the results are indeterminate. This is partly due to the endogeneity problem between ownership and firm value in addition to the mixed effects of managerial ownership on firm value. In theory, larger managerial ownership positively affects firm value by aligning the incentives of managers with those of outside shareholders, but managers would also hold larger numbers of shares if they find the shares of their companies are undervalued. Such an endogeneity issue makes it extremely difficult to test empirically the effect of managerial ownership on firm value. In addition, a larger size of managerial ownership entrenches managers, which has a negative effect on the firm value, leading to indeterminate conclusions on the issue. In this paper, we identify wage bargaining as a corporate decision process in which managers or controlling shareholders can get involved. We set up a theoretical model to predict the relationship between managerial ownership and wage decision, and empirically test the hypotheses based on the model. We use a cooperative bargaining model in which a controlling shareholder or a manager who represents the share holder bargains with employees to decide on employees’ wage. Unlike other production factors such as financial capital or intermediate materials to be out- sourced from competitive factor markets, wage provides a good candidate for confirming the role of controlling shareholders in corporate management since wage is negotiable in the bargaining process between the firm and its employees. We derive theoretical predictions on the effect of controlling ownership and the personal benefits controlling share holders gain from controlling the wage of the firm’s employees. As a result, we could empirically confirm the disciplinary role of controlling ownership in wage decision in firms. The theoretical model predicts that controlling ownership is negatively correlated with the wage of employees as long as the profitability of the firm is not too high or employees’ stock ownership is large enough. This is because the relative importance of cash flow rights of a controlling shareholder increases with his stock ownerships while the relative importance of his private benefit of control decreases. Our intuition dictates that the more shares the controlling shareholder owns, the higher wage will be incurring more cost to his share value, providing an incentive for him to lower the wage. Thus, the condition of low profitability is needed since the controlling shareholder may concede too much in a wage bargaining if he has too much to lose when the profitability of the firm is very high and the bargaining fails. The condition for the reasonable level of employees’ ownership also implies that employees also need to have something to lose if the bargaining fails. Empirical analyses confirm the theoretical predictions and show that there is a negative relationship between the two variables. We also show in the theoretical model that the size of the private benefit of control is positively correlated with employees’ wage. We conjecture that controlling shareholders concede to the employees in the wage bargaining since the private benefit can be lost if the bargaining fails. The data used in this paper for empirical analyses is obtained from the TS-2000 of KLCA, and covers the listed companies on the Korea Stock Exchange during the years from 1999 to 2002. The empirical analyses confirm the theoretical predictions and show that there is a negative relationship between controlling ownership and wage level. When we include an interaction variable between low profitability dummy variable and controlling ownership, the coefficient is negative and significant at the 1% significance level. The result confirms our conjecture that the monitoring role of controlling shareholders will be stronger when the firm does not perform well. When we divide the sample firms based on their employees’ ownerships and profitability, we again confirm our theoretical results that the monitoring role of controlling shareholders would be stronger in those companies with higher employees’ ownership and lower profitability. The over all results suggest that a professional manager with lower stock ownership would collude with his employees and allow them higher wages in order to secure his control over his firm. The paper also shows that the disciplinary role of a controlling shareholder is more prominent when the performance of the company is poorer. On the other hand, any increase in the ownership by employees or their participation in a labor union tends to have an increasing effect on their wage level. The theoretical and empirical results of the paper enhance our understanding of the role of a controlling shareholder as a monitor of corporate management.
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본 논문은 프리보드(전신인 “제3시장” 포함)가 한국의 조직화된 장외주식시장으로서 그 기능을 효과적으로 수행해왔는지를 거래편의기능, 자금조달기능, 정규시장과의 가교기능 에 초점을 맞춰 고찰하였다. 2000년 3월 설립부터 2007년 12월까지 일중거래자료를 사 용하여 분석한 결과는 다음과 같다. 첫째, 지정기업과 관련된 모든 시장통계량이 절대적 으로 작으며 시장의 질적 수준도 코스닥과는 비교할 수 없을 정도로 낮아, 투자자에게 새 로운 투자기회나 장외주식 거래의 편의를 제공하지 못하고 있다. 둘째, 자금조달 실적 및 건수 자체가 절대적으로 미미해 비상장·비등록기업에게 직접금융을 제공하는 기능도 수 행하지 못하고 있다. 셋째, 정규시장 퇴출 후 프리보드로 이전한 경우 유동성은 현저히 악 화되고 변동성도 대폭 상승하는 반면, 프리보드에서 정규시장으로 이전한 경우에는 유동 성과 변동성 모두 크게 개선되는 것으로 나타난다. 이상의 결과는 코스닥과 프리보드 사이 에 시장기능의 공백이 너무 커 현재 한국주식시장의 거시구조가 효율적이지 않음을 시사 한다. 또한 프리보드가 장외주식시장으로서 본연의 경제적 기능을 완수하려면 상대매매방 식의 거래메커니즘은 반드시 개선되어야 할 본질적 장애요인임을 시사한다.
The Korean stock markets include the KOSPI market (main board), the KOSDAQ market (new market), and the FreeBoard (organized OTC stock market). Originally, the first organized OTC stock market in Korea was the Third Market, which was founded in March 2000, specifically for the purpose of providing liquidity for stocks which could not meet the listing requirements for the regulated markets (the KOSPI and the KOSDAQ markets), particularly venture-related growth stocks; or which had been delisted from the regulated markets. Except for the first couple of years, however, the Third Market suffered from illiquidity arising mainly from regulatory inadequacy and the IT bubble. Hence, the Third Market did not fulfill the goals for which it was created. The Korean government decided to revamp the Third Market under its “Plan to Support Finance and Tax for Developing the Venture Industry;” in July 2005, the Third Market was replaced by FreeBoard, market rules were strengthened, and some tax benefits were added. However, the tax benefits fell short of the tax benefits provided to the regulated markets, and FreeBoard retained an archaic trading mechanism, in which orders are usually matched only if they are identical in both price and quantity. In this paper, we examine how effectively FreeBoard (including the Third Market, the predecessor of FreeBoard) has served three particular roles as the organized OTC stock market in Korea. The roles examined are: providing liquidity and market quality, providing financing, and bridging the OTC and regulated markets. First of all, FreeBoard’s creation of liquidity and market quality are examined through microstructure analysis. The latest microstructure theory uses trade-execution costs (or pricing errors) to measure a stock market’s quality in general. Hasbrouck (1993) and Bandi and Russell (2006) are representative of the research. In this paper, we utilized the Full-Information Transaction Cost (FITC) in Bandi and Russell as the main analytical frame. In addition, as a robustness check, we used Hasbrouck’s measure for pricing errors. We analyzed these estimates and other market statistics to measure the market quality of the FreeBoard in comparison to the KOSDAQ market. Next, we evaluated FreeBoard’s role of providing finance to unlisted firms by analyzing the total amounts of equity and bond financing raised by companies. Finally, we undertook a market macrostructure analysis to examine FreeBoard’s role of bridging the OTC and regulated markets. The analysis of the connection between the OTC and regulated markets compares the changes in market liquidity and volatility resulting from a listing transfer from the regulated markets to the FreeBoard or vice versa. Until recently, there has been very limited academic research concentrating on the OTC stock markets. However, the development of IT relating to stock trading and the increasing liquidity of the OTC markets has recently enabled the collection of OTC trading data, and several research projects are being carried out internationally, especially in the U.S. Compared to other papers focusing on Korea, this is the first paper to use FreeBoard’s intraday data to test its functional efficiency and economic significance. Other international papers have conducted analysis for the “one-way” bridging function from the NYSE and Nasdaq down to the OTCBB and Pink Sheets (Easley, O’Hara and Pompilio (2005) and Harris, Panchapagesan and Werner (2008)). This is the first paper to conduct a complete analysis of the OTC market’s “two-way” bridging function, both from the regulated markets down to the OTC, and from the OTC up to the regulated markets, in order to investigate the significance of the OTC market’s macrostructure. The sample period is from March 2000 to December 2007. We used intraday trade execution data for all stocks listed (registered) on both the Third Market and FreeBoard. We found the following results. •Market statistics of the firms listed on the FreeBoard are qualitatively very low and its market quality measured by FITC (or Hasbrouck’s pricing errors) is much lower than those of the KOSDAQ market. Hence, the FreeBoard does not provide adequate liquidity or market quality, and thus does not provide an attractive new investment opportunity for investors. • Few public offerings have been made since the inauguration of the market, so FreeBoard has not significantly facilitated financing for unlisted and unregulated firms. • In the case of stocks moving from regulated markets down to the FreeBoard, liquidity dried up and volatility increased substantially. In contrast, for stock transferring from the Free- Board up to the KOSDAQ market, both liquidity and volatility improved tremendously. In the latter case, perhaps surprisingly, the stock prices decline slightly; our interpretation is that the prices were too high on Freeboard since the greater liquidity suggests that pricing on KOSDAQ should be more efficient than it is on FreeBoard. Taken together, these results imply that FreeBoard’s market efficiency is very low. Our results also show that the functional gap between FreeBoard and the KOSDAQ market is huge, thereby exacerbating the inefficiency in the macrostructure of the Korean stock markets. Moreover, our results indicate that FreeBoard’s archaic trading mechanism has been the essential cause of inefficiency on FreeBoard and should be improved immediately.
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본 논문은 Adrian and Franzoni(2005)가 개발한 학습 자본자산가격결정모형(learning CAPM)을 재고찰한다. Adrian and Franzoni(2005)의 모형은 변수오차(errors-invariable), 생략변수(omitted-variable) 문제로 인한 모형의 내생성을 무시하였는데, 본 논문에서는 설명변수와 오차항 사이에 상관관계가 존재할 경우에 적용할 수 있는 Kim (2006)의 방법론을 대안으로 제시하여 모형 설명력의 개선 여부를 고찰한다. 본 연구의 실증분석 결과는 아래와 같다. 첫째, Hausman(1978)의 내성성 테스트에서 시 장초과수익률과 오차항 사이에 뚜렷한 상관관계가 존재하므로 Kim(2006)의 방법론을 정 당화한다. 둘째, 제시된 모형에서 소형-가치주는 1.62, 대형-성장주는 0.94로 시장베타 의 평균이 각각 추정되어 소형-가치주에 대해 체감하는 위험이 대형-성장주에 비해 상대 적으로 높았으며 이는 소형-가치주의 높은 기대수익률을 정당화한다. 셋째, 제시된 모형 의 설명력이 Adrian and Franzoni(2005)의 모형에 비해 전반적으로 개선되었으며, 특히 가중가격오차(CPE)가 약 49% 감소하였다.
This paper re-examines the learning CAPM, a new version of conditional CAPM, developed by Adrian and Franzoni (2005). While acknowledging its firm foundation, we argue that the learning CAPM is likely to be exposed to endogeneity problems. In other words, the regressors are possibly correlated with the disturbance terms due to the omitted risk factors and errors-in-variable problems from the imperfect proxy for the unobservable market portfolio. Kim (2006) shows that the conventional Kalman filter provides an econometrician with invalid inference about the parameters if one ignores the endogeneity problems and provides new approach to circumvent endogeneity problems. In this paper, we test whether the proposed model can account for the Fama and French 25 size and book-to-market sorted portfolios. To test the joint significance of pricing errors, we use the root mean squared error (RMSE) where it gives equal weight to each portfolio as well as the composite pricing error (CPE) of Campbell and Vuolteenaho (2004) in which it gives less weight to the volatile portfolio. The main findings of this paper are summarized as follows. First, Hausman’s (1978) specification test shows that there is a substantial correlation between the market portfolio and disturbance terms, which justifies the application of Kim’s (2006) two-step approach. We reject the null hypothesis of no correlation between the regressors and the disturbance terms in seventeen out of twenty-five portfolios. Second, our specification partly explains the size and value premium. While the time trends of the estimated market betas of the one from the Kalman filter ignoring endogeneity problems and our specification are very similar, the average market betas are considerably different. For example, the estimated average market beta of small-value portfolio by Kim’s (2006) approach is 1.62, whereas it is 1.05 when inferred from the Kalman filter ignoring endogeneity problems. It means that while the market betas of small-value stocks are underestimated if we ignore the endogeneity problems, the introduction of long-run market beta correctly estimates the true riskiness of small-value stocks. In addition, with Kim’s (2006) approach, the estimated average market beta of large-growth portfolio is 0.94, while it is 1.62 for small-value portfolio. Therefore, the proposed model explains why investors' expected return from small-value stocks is higher than that from large-growth stocks. Under our framework, small and value stocks earn more than big and growth stocks just because they are riskier than big and growth stocks. Third, the overall performance of our specification is better than that of the one from the Kalman filter ignoring endogeneity problems. The RMSE is reduced by about 28%. More importantly, the CPE drops by about 49%. Thus, the learning CAPM incorporating the endogeneity problems can better account for the size and value premium. However, our specification is not fully able to explain the value premium since the pricing errors of value portfolios are still significantly positive. Therefore, it seems that we are still missing some important determinants that explain the stock return patterns. Adrian and Franzoni (2005) develop a new type of conditional CAPM by incorporating the long-run changes in factor loadings as well as the contemporaneous changes in market betas. In their model, the long-run market beta plays a crucial role in explaining the size and value premium. Franzoni (2004) documents that the market betas of small and value stocks have decreased substantially in the second half of twentieth century. Based on the reduction in betas of small and value stocks, they argue that the high level of market betas from the past affect today’s market betas. The slow-learning of investors caused by the introduction of the long-run mean of market betas makes them larger than the OLS estimates. However, we argue that the regressors of the learning CAPM are very likely to be correlated with the disturbance terms. It is because : (1) there might be omitted risk factors such as SMB and HML of Fama and French (1993) which can explain most of the CAPM-related anomalies(size and value premium); and (2) there might be the errors-in-variable problems from the imperfect proxy for the unobservable market portfolio. Kim (2006) documents that the correct inference of Kalman filter strongly depends on the assumption that the regressors are uncorrelated with the disturbance terms. His simulation study shows that the conventional Kalman filter provides an econometrician with invalid inference about the parameters if one ignores the endogeneity problems. He derives a Heckman-type (1976) two-step approach to circumvent endogeneity problems and shows that one can obtain the consistent estimates of the hyper-parameters and correct inference of the time-varying factor loadings with the proposed two-step approach. Therefore, we apply Kim’s (2006) two-step approach to infer the time-varying market betas under the learning CAPM of Adrian and Franzoni (2005).
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