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본 연구는 한국주택금융공사 보금자리론 풀을 대상으로 합리적 조기상환을 가정하는 이론모형을 통해 조기상환율을 추정하고 분석하는 것을 목적으로 한다. 연구대상 풀은 2010년 12월 기준 최소 관측치가 30개가 넘는 34개 풀이며 조기상환 관측치는 1,877개 관측치를 활용하였다. 이론모형은 금리요인 외에 주택가격을 상태변수로 도입하며, 모기지 차입자의 이질성을 명시적으로 고려하는 Downing, Stanton, and Wallace(2005) 모형을 적용하되 주택가격이 하락하는 경우 뿐 아니라 상승하는 경우에도 조기상환율에 영향을 미칠 수 있도록 조기상환 위태율 구조를 변형하여 조기상환율을 추정하였다. 조기상환율 추정 시 금리요인 외에 주택가격을 상태변수로 포함하는 경우와 포함하지 않는 경우를 구분하여 분석하였다. 실증분석결과 모기지론의 조기상환율을 설명하는 요인으로서 금리변수와 함께 주택가격변수 역시 통계적으로 유의하게 추정되었다. 위태율 모수구조에 있어 Downing et al.(2005)과 같이 주택가격을 가격하락에 따른 부도요인에만 영향을 미치는 방식으로 설정하는 경우에는 조기상환율을 설명하기 어려웠으며 주택가격 상승도 조기상환율에 영향을 미칠 수 있도록 설정된 변형된 위태율 모수구조에서는 추정 결과가 우수하였다. 국내의 경우 부도요인 효과가 유의하지 않은 이유는 연구 대상기간(2004년~2010년)동안 주택가격이 큰 폭으로 하락한 경험이 없고 모기지론 대출시장에서 보수적인 LTV(Loan-To-Value)가 적용되어 온 것에 기인하는 것으로 판단된다.
We estimate a two-factor structural mortgage valuation model using data on pool-level termination rates for fixed-rate mortgage loans issued by the Korea Housing Finance Corporation (KHFC) between 2004 and 2008. Our model is a modified version of that proposed by Downing, Stanton, and Wallace (DSW, 2005), in which borrowers rationally decide when to prepay and default in response to changes in house prices as well as interest rates. DSW (2005) find that incorporating house price movements into the model significantly improves its ability to match historical prepayment data over Stanton’s (1995) one-factor (interest rate only) model. In DSW (2005), house price changes are modeled to affect borrowers’ termination behavior only when prices decline by increasing the value of default option, but this particular specification does not bode well for our Korean sample period, during which house prices did not experience substantial or sharp declines. Consequently, we modify DSW’s (2005) two-factor model so that house price movements influence termination behavior when prices increase as well as when prices decline. In contrast to the structural model used in this paper, previous empirical research on mortgage prepayment in Korea has mostly used statistical models, in which termination behavior is modeled as a function of a set of exogenous variables such as interest rates and house prices that represent the factors affecting prepayment and default. While such statistical approach may produce estimated prepayment rates that are closer to the historical data, its out-of-sample forecasting power is likely to be low, and the model is not suitable for pricing mortgage-backed securities. The structural approach taken in this study, on the other hand, models prepayment and default as a rational borrower’s optimal responses to the changes in interest rates and house prices that represent the model’s state variables. Such structural models should perform better out of sample than statistical models, and they can be used in the valuation of mortgage-backed securities. The mortgage prepayment data used in this study are from 34 pools of fixed-rate mortgage loans (called Bogeumjari loans) issued by the KHFC. The sample period is from June 2004 to December 2010, and the prepayment rates at the pool-level, as published monthly by the KHFC, are used. The empirical results show that both interest rates and house price changes significantly affect prepayment rates. In particular, house prices and prepayment rates have a positive association, consistent with Park and Bang (2011) and Choi and Kim (2011), who use statistical models. In addition, incorporating house price movements into the model improves its performance in matching historical prepayment rates, compared to the model in which only interest rate movements are considered. The results of Davidson and MacKinnon’s (1981) J-test selecting between non-nested models show that the two-factor specification that includes house prices and interest rates is better for estimating prepayment rates than the one-factor (interest rate) specification. Moreover, we find that the two-factor model produces prepayment forecasts that are closer to the historical data than the one-factor model in an out-of-sample test. In a structural model, mortgage terminations (prepayment or default) are the result of borrowers’ optimizing behavior, and house price movements can affect the borrowers’ termination behavior as follows. When house prices fall, the value of the default option implicitly held by the borrower increases. And the movements in the value of the default option significantly affect the value of the borrower’s prepayment option and therefore, the likelihood of prepayment. However, we find that prepayment rates decrease with declining house prices. The house prices in Korea experienced some declines during our sample period, but not by any substantial degree. Our finding of lower prepayment rates in times of declining house prices is similar to Mattey and Wallace (2001), who find that weak house prices tend to depress refinancing and prepayments. When house prices increase, so does the collateral value of the houses and the value of the borrower’s equity, which influences the likelihood of prepayment if, for example, the borrower wants to cash out some of the increase in equity. This argument is consistent with the higher prepayment rates during times of increasing house prices found in this paper. More specifically, the period of increasing house prices in our sample is from late 2006 to early 2007, which coincides with rising interest rates. Despite the rising interest rates and penalties for prepayment, prepayment rates during that period increased in close association with rising house prices, suggesting that both interest rates and changes in house prices significantly affect mortgage prepayment rates in Korea.
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본 연구는 회사채 신용등급으로 측정된 재무곤경위험(financial distress risk)과 주식 수익률의 관계를 분석하였다. 신용등급을 기준으로 구성한 포트폴리오의 초과수익률은 신용등급이 나빠질수록 감소하는 것으로 나타났으며 CAPM, Fama-French 3요인 모형, Carhart 4요인 모형을 이용하여 위험을 조정한 초과수익률도 동일한 결과를 보였다. 신용등급 기준 5분위 포트폴리오 중 가장 나쁜 신용등급의 주식들을 매수하고 가장 좋은 신용등급의 주식들을 매도하여 구성한 매수-매도 포트폴리오의 가치가중 및 동일가중 수익률 역시 유의한 음(-)의 값으로 나타났다. 나쁜 신용등급 포트폴리오의 낮은 수익률은 기업규모, BM, 모멘텀을 통제한 후에도 유의하게 존재하였다. 신용등급이 개별 주식수익률에 미치는 영향을 분석하기 위해 실시한 신용등급을 포함한 Fama- MacBeth 횡단면 회귀분석에서 신용등급의 회귀계수는 유의한 음(-)의 값을 보여 신용등급이 나빠질수록 개별 주식의 수익률은 낮아지는 것으로 나타났다. 이러한 실증분석 결과는 한국 주식시장에 재무곤경 이례현상이 존재함을 시사하는 것이다.
Given the numerous studies showing that firm size and book-to-market (BM) ratio are significant variables in explaining the cross-section of equity returns, size and BM effects have become the most notorious anomalies in asset pricing. Chan, Chen, and Hsieh (1985) and Chan and Chen (1991) argue that a default factor explains much of the size effect, and Fama and French (1992, 1993) show that the BM effect may be due to firms’ financial distress risks. As small firms with high BM ratios are likely to suffer from financial distress, the positive relationship between financial distress risk and equity returns may provide a rational risk-based explanation for size and BM effects. However, much of the research indicates that financially distressed stocks earn abnormally lower returns. In this study, we investigate the relationship between financial distress risk, proxied by corporate bond credit ratings, and equity returns in the Korean stock market. Dichev (1998) examines the relationship between bankruptcy risk and subsequent equity returns and finds that higher distress risk is not rewarded by higher returns. The result appears to be inconsistent with a distress factor explanation of size and BM effects. Griffin and Lemmon (2002) explore the relationship between BM ratio, distress risk, and stock returns, and document that stock returns are lower for firms with low BM ratios and high distress risk. Their study is consistent with the “overreaction hypothesis” associated with the BM effect, and the “underreaction hypothesis” for the distress effect, implying that the BM effect is not likely to be explained by the distress risk factor. Vassalou and Xing (2004) argue that firms with higher default likelihood indicators earn higher returns. They present their analysis as a risk-based explanation of the BM effect. However, Da and Gao (2010) show that their results are driven by penny stocks and first-month reversals. Campbell, Hilscher, and Szilagyi (2008), Garlappi, Shu, and Yan (2008), and Da and Gao (2010) also confirm the negative relationship between distress risk and equity returns. The finding that stocks with high distress risk are not compensated by high returns in the stock market suggests an anomaly called “the financial distress anomaly” or “the financial distress risk puzzle.” There are several ways to measure a firm’s default risk to examine the relationship between distress risk and stock returns. First, a logit model can be used to measure a firm’s distress risk (Ohlson, 1980; Shumway, 2001; Chava and Jarrow, 2004). Griffin and Lemmon (2002), Campbell et al. (2008), and Chava and Purnanandam (2010) adopt the hazard rate estimation methodology. The second approach is based on Merton’s (1974) call option pricing model. Vassalou and Xing (2004) and Kim and Park (2010) use the call option approach to measure a firm’s distress risk. The third measure is the credit ratings announced by credit rating agencies. Avramov, Chodia, Jostova, and Philipov (2009) investigate the relationship between the credit ratings provided by Standard & Poor's and stock returns. In this study, we use credit ratings to measure firms’ distress risk. The empirical results are summarized as follows. First, as credit ratings deteriorate, the average excess returns on the credit rating-sorted quintile portfolios decrease. The average monthly excess returns on the best (worst) rating quintile are 1.187% (-1.789%). The Capital Asset Pricing Model, Fama-French three-factor, and Carhart four-factor alphas for the credit rating quintiles also decline with the credit ratings. The return on the long-short portfolio holding stocks to the best rating quintile and shorting stocks to the worst rating quintile is significantly negative (-2.976%). These relationships hold after controlling for firm size, BM ratio, and momentum. Second, we run Fama-MacBeth regressions to examine the relationship between credit ratings and the cross-section of equity returns, and document that the coefficient on the credit rating variable is significantly negative. This finding implies that the credit rating is a significant factor in determining the cross-section of stock returns. For robustness checks, we confirm the negative relationship between distress risk and equity returns after removing downgraded firms and penny stocks from the sample. Finally, we report that market betas and loadings on the HML and SMB factors do not decrease as credit ratings decline, implying that a rational risk-based explanation is unlikely to account for abnormally low returns on stocks with bad credit ratings. Our empirical results do not support the conjecture that distress risk may be behind size and BM effects, due to evidence that distress risk is negatively related to equity returns. Kim and Park (2011) argue that default risk is positively related to stock returns in the Korean stock market. This study challenges them based on the “financial distress anomaly” in the Korean stock market.
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과거 국내 연구들은 제한된 자료로 인하여 결과를 신뢰하기가 어렵고, 시초가 결정 방식이나 보호예수제도의 변경 등을 감안하지 못할 뿐만 아니라, 벤처캐피탈의 IPO 초기 지분매각이 CAR에 부(-)의 영향을 미쳐 그들의 역할에 영향을 미칠 수 있기 때문에, 본 논문에서는 IPO 초기에 지분을 매각한 그룹과 매도하지 않은 그룹으로 구분하여 벤처캐피탈의 보증역할과 경영지원역할을 검정하였다. 상장한 당일과 한 달 후 CAR을 분석한 결과를 보면, IPO 기업의 단기성과에 영향을 미치는 변수들을 통제한 후에도 우리나라 벤처캐피탈이 보증역할을 수행하는 것과 벤처캐피탈의 지분율이 높을수록 보증역할이 커짐을 확인할 수 있었다. 그러나 IPO 이후 조기에 지분을 매각한 벤처 캐피탈 투자기업의 경우에는 벤처캐피탈의 보증역할이 존재하지 않음을 발견하였다. 36개월 BHAR을 분석한 결과를 보면, 장기성과 관련 변수들을 통제한 후에도 우리나라 벤처캐피탈의 경영지원역할이 존재하지 않으며, 벤처캐피탈의 지분율이 높을수록 오히려 IPO 기업의 장기성과가 좋지 않음을 발견하였다. 아울러 벤처캐피탈의 초기 지분매각으로 인해 벤처캐피탈 투자기업의 장기성과가 저조한지 살펴본 결과, 일부 그런 효과가 발견되기는 하였으나 통계적으로 유의한 수준은 아니었다.
It is well known that venture capitals perform the certification role that reduces the underpricing of IPO firms by alleviating the information asymmetry between insiders and public investors. However, previous Korean studies suggest that the certification role played by Korean venture capitals is not supported—in contrast to the findings of foreign studies. It is also known that venture capitals perform the management support role that accommodates the growth of venture-backed firms and enhances the value of their portfolio companies—a direction explored by few in Korea. In this study, we analyze the short- and long-term performance of IPO firms and the certification and management support roles of venture capitals in a sample of 263 venture-backed IPOs and 213 non-venture-backed IPOs in the Kosdaq market from 2002 to 2012. Specifically, abnormal returns (AR) or cumulative abnormal returns (CAR) can be affected by the early sale of venture capitals’ equity stakes after IPO, so we test their roles by dividing venture-backed IPO firms into two groups: one in which equity shares are sold early and the other in which they are not sold by venture capitals after IPO. The results of previous domestic studies on these issues are not reliable due to a limited data sample problem, and the restrictions inherent in not considering important changes such as the determination method of first day opening price and the lock-up period in Korea. As early sales of venture capitals’ equity stakes can negatively affect the CAR of venture-backed IPOs, and the certification and management support roles played by venture capitals, we divide venture capitals into two groups based on whether they sell their equity stakes early or not. We then test for differences in the roles between the two groups. We find that Korean venture capitals perform the certification role after controlling the variables affecting the short-term performance of IPO firms and that the role strengthens as their equity stakes in IPO firms increase, based on the regression results for first day AR and one month CAR. However, the certification role played by venture capitals is not observed among venture-backed IPO firms whose equity stakes are sold early by venture capitals after the IPO. To analyze the effect that the equity sale of Korean venture capitals has on their certification role further, we divide venture-backed IPO firms into three groups: firms in which equity shares are sold by venture capitals immediately after IPO, those in which equity shares are sold by venture capitals within a month from the second day after IPO, and those in which equity shares are not sold at all by venture capitals within a month after IPO. The regression results show that for the second group, the certification role cannot be found at the 5% significance level and for the other groups, the certification role is not statistically significant. Our analysis of the regression results on three-year buy-and-hold average returns (BAHRs) show that Korean venture capitals do not perform the management support role after controlling the variables affecting the long-term performance of IPO firms. The long-term performance of venture-backed IPO firms decreases as the equity stakes of venture capitals increase. We also test whether the early equity sales of venture capitals prompt the underperformance of venture-backed IPO firms by dividing them into three groups again. The regression results show that as venture capitals sell more their equity shares of venture-backed IPO firms immediately or within a month from the second day after IPO—their BHARs decrease. In contrast, for venture-backed IPO firms in which equity shares are not sold by venture capitals, the BHARs increase as expected, although not with statistical significance. The results suggest that it is very difficult to anticipate the management support role of Korean venture capitals because they sell their equity stakes early (137 out of 263 portfolio companies). This implies that Korean venture capitals are trying to exit as early as possible through the IPOs of their portfolio companies instead of accommodating long-term, win-win growth. Korean President Park Geun-hye’s new government is concentrating its efforts on nurturing innovative small and medium-sized companies under the slogan, “Creative Economy.” Hence, the role of venture capitals as a main financing source and value creator for venture firms is more crucial than it has ever been. However, as this study shows, if the management support role is not adequately performed, venture capitals’ involvement will be limited to providing funding assistance. Therefore, more research on how to develop the management support role played by Korean venture capitals is needed for “Creative Economy” to be successful. The myth that the long-term performance of venture-backed IPO firms is worse than that of non-venture-backed IPO firms in Korea must be investigated further.
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본 연구는 비상장기업(펄기업)이 상장기업(셸기업)의 경영권을 인수함으로써 상장기업 지위를 획득하는 우회상장의 부실화 요인을 분석한다. 배임․횡령 등 투자자보호 문제의 발생, 관리종목지정, 상장폐지를 포괄적으로 부실화로 정의하여 우회상장의 성과를 정성적 관점에서 평가하며, 펄기업과 셸기업의 재무적 특성뿐만 아니라 셸기업의 기업지배구조 및 공시정보의 특성을 함께 고려하여 부실화의 원인을 파악한다. 2006년 7월부터 2010년 6월까지 코스닥시장에서 발생한 104건의 우회상장 사례를 198건의 정규상장 사례와 비교분석하여 다음과 같은 결과를 확인하였다. 첫째, 국내 우회상장은 규모가 작고, 수익성이 낮으며, 정보비대칭이 큰 비상장기업과, 규모가 작고, 최대주주 지분율이 낮으며, 사업성과가 부진한 상장기업의 비관련 결합이 상당수를 차지하는 것으로 나타난다. 둘째, 우회상장기업은 정규상장기업에 비해 투자자보호 문제와 상장폐지가 빈번하게 발생하며, 셸기업의 최대주주 지분율이 낮을수록, 지배구조 변경이 잦을수록 그 빈도는 더 높게 나타난다. 셋째, 우회상장 공시일 전후에는 높은 양(+)의 초과수익률이 발생하나, 우회상장 지정일 이후 모두 상쇄되어 사라지는 것으로 확인된다. 특히, 펄기업의 우회상장 직전 수익성이 높을수록 우회상장 지정일 이후의 누적초과 수익률이 더욱 낮아지는 것으로 나타난다. 이러한 분석결과는 국내 우회상장이 기업결합을 통한 시너지 창출보다는 상장지위의 손쉬운 획득과 상장폐지의 모면에 초점이 맞춰져 있으며, 셸기업의 취약한 기업지배구조 및 기업결합 과정의 비효율성과 결합되어 조기 부실화로 이어지고 있음을 보여주고 있다.
In a backdoor listing, often called a “reverse merger,” an unlisted or “pearl” company obtains listed status by acquiring management control of a listed or “shell” company. Such backdoor listings provide unlisted companies with synergistic mergers and acquisitions (M&A) opportunities and the benefits of being listed. However, the reality is that the companies using this method are often involved in unfair trading scandals that harm investors, or become insolvent shortly after listing. For example, NeosemiTech was delisted in an accounting fraud scandal and issued an audit opinion of rejection on August 23, 2010, less than a year after its backdoor listing through its merger with Mono Solar, a KOSDAQ listed company. This backdoor listing practice raises many theoretical and regulatory issues because backdoor listings integrate aspects of both IPO and M&A. Adjei, Cyree, and Walker (2008) investigate the characteristics of companies using reverse mergers and Gleason, Rosenthal, and Wiggins III (2005) study the characteristics and performance of reverse mergers. In Korea, the research focuses on the factors affecting the choice between backdoor listing and IPO, the market reaction to backdoor listing, and the performance of the companies listed through reverse mergers (e.g., Kim and Lee, 2009; Choi and Lee, 2006; Park, Park, and Pae, 2009; Yun and Kang, 2009). While the literature documents the aforementioned typical features of backdoor listing, we focus on the deterioration of backdoor-listed companies—one of the most noted stylized facts in the literature that has barely been explored. In addition, our study is the first of its kind in the backdoor listing literature to investigate the corporate governance of shell companies as well as the financial characteristics of shell and pearl companies. In this study, we conducted an empirical analysis using 104 backdoor and 189 regular listing cases from July 2006 to June 2010 in the KOSDAQ market. Similar to the results of previous studies, backdoor listing was preferred over regular listing by companies that were smaller, had lower net profit margins, or were subject to information asymmetry. This held true regardless of whether the pearl companies met the quantitative listing requirements in the KOSDAQ market. Second, the shell companies were more likely to be businesses that could easily merged due to their smaller size, lower ownership of the largest shareholders, and poor performance. Third, an analysis of the public disclosures revealed that compared to firms that undertook regular listing, backdoor-listed firms reported the following cases more often: violation of regulations, changes in governance structure, and delisting. Backdoor-listed firms were also more likely to experience distress shortly after the listing, when the shell company’s largest shareholders had a low ownership share and the shell company saw frequent changes in its corporate governance, or when the pearl company experienced higher profits just before the listing. Fourth, high positive excess return was observed around the date when the backdoor listing was disclosed and negative excess return occurred after the designated date. The cumulative excess return before and after backdoor listing was high for the shell companies that violated regulations before a reverse merger, implying that the investors positively evaluated the reverse merger’s effect on the governance reorganization of the shell company. However, the cumulative abnormal return after the designated date was lower for the pearl companies that recorded higher profits right before backdoor listing, which shows that pearl companies sometimes window dress before backdoor listing. The findings in this study demonstrate that backdoor listing is likely to occur with a shell company that is small in size, has relatively lower ownership by the largest shareholders, exhibits poor performance, and whose business is irrelevant to that of the pearl company. Often, the motive for the backdoor listing is the acquisition of listed status rather than the creation of synergy, resulting in a high probability that pearl companies choose backdoor listing because they fail to meet the quantitative or qualitative requirements for a regular listing.. We found that backdoor listed companies that merged with shell companies under weak corporate governance experienced investor protection- related problems or delisting more frequently, emphasizing the importance of examining qualitative requirements during the backdoor listing process. Hence, our study ascertains that the qualitative inspection system for backdoor listing introduced in September 2010 is appropriate.
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본 논문에서는 지배주주 지분율과 은행차입금 비율 간에 어떠한 관계가 있는 지에 대하여 분석한다. 분석결과, 지배주주 지분율과 은행차입금 비중은 비선형관계가 있는 것으로 나타났다. 즉 일정 수준 미만의 지배주주 지분율이 있는 기업의 경우에는 은행차입금을 더 선호하는 반면, 일정 수준 이상으로 지배주주가 소유하고 있는 기업의 경우에는 은행차입금 비중이 유의적으로 감소하는 것으로 나타났다. 이는 지배주주 소유지분율이 낮은 기업에서는 비용 감소를 통한 기업가치 극대화를 위해 은행차입금을 선호하는 반면, 지배주주가 상당한 수준의 지분을 가지고 있는 경우 지배주주는 은행차입을 통하여 자금조달비용을 절감하는 것보다 은행차입으로부터 발생하는 모니터링을 회피하고자 하는 유인이 더욱 강한 것으로 해석된다. 한편 기업특성을 고려하여 지배주주 지분율과 부채종류의 선택간의 관계를 분석한 결과, 재무적 곤경이 상대적으로 높은 기업은 지배주주 지분율이 낮은 구간에서도 은행차입을 회피하는 결과를 보였다. 한편 기업연령이 높은 경우 지배주주 지분율이 높은 구간에서는 상대적으로 은행차입을 선호하고 있으며, 지배주주 지분율이 낮은 구간에서는 공적부채를 선호하는 결과를 보이고 있다. 또한 다수의 대주주가 존재하는 경우에는 지배주주 지분율이 일정수준 이상인 경우에도 은행차입금 비중이 증가하는 것으로 나타났다.
In this study, we investigate the relationship between the ownership of controlling shareholders and the proportion of bank loans in total debt. According to the literature, when the ownership of controlling shareholders is large enough, it incentivizes the controlling shareholders to pursue their private interests. If it is low, however, outside investors and other stakeholders, including the governance system of the company, prompt the managers of the company to maximize the firm value (Demsetz, 1983; Fama and Jensen, 1983; Morck et al., 1988). Thus, there is anon-linear relationship between the ownership of controlling shareholders and the firm value that is, until a certain level of executive ownership is reached, it increases the firm value, but if it exceeds a critical level, the firm value decreases due to controlling shareholders’ pursuing their private interests (Stulz, 1988; Morck et al., 1988; McConnell and Servaes, 1990; Kim, 1992). According to the theories that controlling shareholders behave differently based on their ownership, in this study, we test whether there is a non-linear relationship between the ownership of controlling shareholders and different debt capital choices. We empirically confirm that the ownership of controlling shareholders has a non-linear relationshipwith the proportion of bank loans in total debt. Specifically, the controlling shareholders whose ownership is below (above) a certain level prefer (accept fewer) bank loans. We also consider the firm characteristics and the level of monitoring when investigating the relationship between the ownership of controlling shareholders and debt capital choices. Our analysis shows that a firm in financial distress seems to avoid the use of bank loans even when the ownership of controlling shareholders is low. We argue that the controlling shareholders of a firm in financial trouble are more likely to follow their private interests and evade the tight monitoring of the banks providing the loans (Johnson et al., 2000; Lin et al., 2013). Our investigation also addresses how a company’s age affects the relationship between the ownership of controlling shareholders and debt capital choices. If a firm is older and the ownership of controlling shareholders is high (low), a bank loan (public debt) is preferred. To analyze the effect that monitoring has on debt capital choices, we use several important proxies for monitoring, such as the ownership of foreign investors, institutional ownership, and the presence of multiple large shareholders. The test shows that foreign investors seem to effectively monitor firms, such that when foreign ownership is large enough, the improved monitoring encourages firms to take more bank loans (Baek et al., 2004; Shin et al., 2004). When there are multiple large shareholders, the ownership of controlling shareholders is positively related to the proportion of bank loans in total debt, even over the critical level of controlling shareholder ownership. We interpret this result as follows. Multiple large shareholders can monitor a firm and its controlling shareholders (Maury and Pajuste, 2005), which prompts the firm to use more bank loans despite the fairly large ownership of controlling shareholders. Finally, we implement additional analyses for robustness checks. We investigate the endogeneity between a firm’s ownership structure and its debt capital choices using a causal analysis. The investigation verifies our hypothesis that although the ownership of controlling shareholders affects debt capital choices, the latter does not affect the former. In addition, our results hold with different methods of inference, such as clustered error estimation or Fama and MacBeth’s (1973) method. Therefore, we confirm our hypothesis that a firm with less ownership of controlling shareholders takes more bank loans than one with more ownership. This study contributes to the literature in the following ways. First, we apply Panano and Roell’s (1998) theory on the decision between IPO and block sales of equity to debt capital choices. They argue that controlling shareholders consider the benefits and costs of IPO compared to the injection of new equity capital through other large shareholders. The cost of IPO is the listing cost and the benefit is less monitoring by diverse minority shareholders after the IPO. We apply this theory to debt capital choices and empirically verify it. Second, we expand on Lin et al. (2013) by including the ownership of controlling shareholders as a main variable in our investigation. Lin et al. use a wedge in their study and find a linear relationship between it and debt capital choices, whereas we find a non-linear relationship between the ownership of controlling shareholders and debt capital choices. Third, we consider the level of monitoring in our main investigation. Extant studies include a firm’s characteristics, but not the level of monitoring, in this vein of research. Fourth, the Korean financial market is one of the best testing platforms from which to observe controlling shareholders’ behavior, especially the pursuit of private interests, as most companies have concentrated ownership structures and are included in conglomerates known as “Chaebols.”
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