Foreign ownership has two competing effects on information asymmetry. Short term investment horizon, superior information processing capability, controlling positions, and increased agency costs associated with foreign ownership increases information asymmetry, while demand for more disclosure, better accounting and auditing standards, use of international auditors, incentive alignments, long term investment horizon and greater monitoring decreases information asymmetry. In this article, we examine and find a significant and positive impact of foreign ownership on information asymmetry measured by bid-ask spread in China. On balance, foreign equity investors tend to enhance their informational advantages more than improving the general informational environments in local markets. These results have implications for transparency and disclosure policies as well as privatization in emerging markets.

The compensation of boards of directors and supervisors is higher in firms with lower earnings, than that of boards of directors and supervisors in corresponding industries with higher earnings. Using firm-level panel data of Taiwan Stock Exchange listed firms over the period 1999–2008, this study investigates the reasons for this phenomenon of rewarding failure. The result provides evidence that rewarding failure is due to an asymmetric reward scheme and human capital retention, and it encourages the board to make aggressive decisions.

This article measures proxies for intensive board monitoring using Korean corporate governance data. We find that intensive board monitoring has a positive effect on firm value in Korea. We also explore the relationship between controlling shareholders' ownership and intensive board monitoring efficiency. We confirm that direct ownership by controlling shareholders moderates the relationship between intensive board monitoring and firm value. For firms with greater disparity between controlling shareholders' control rights and cash flow rights, the effect of intensive board monitoring on firm value decreases. These results suggest that the interplay among various internal control mechanisms affects corporate governance efficiency.

This study examines how analysts would recommend poorly governed firms to their clients in an emerging market where information asymmetry tends to be high and shareholder rights are not well protected by legal systems. Given that analysts have incentives to access managers and to help their brokerage houses win investment banking deals, we hypothesize that poor corporate governance reveals a firm's preference for upward-bias recommendations, while good corporate governance reveals its preference for more accurate information, and that analysts are inclined to give what the firm prefers. We examine 55 652 recommendations on firms listed on the Taiwan Stock Exchange and find evidence consistent with our hypothesis. Our study implies that analysts' buy recommendations on firms with poorer corporate governance are less reliable. Furthermore, improving corporate governance not only can reduce agency problems within firms, but can also enhance information quality produced by analysts and reduce information risk faced by investors.

Using data from the Korean stock market (1,907 firm-years for the 2005–2010 period), we extend the study of analyst tipping first documented by Irvine et al (Review of Financial Studies, 20, 2007 pp. 741–768), who show evidence that brokerage firms tip institutional investors in order to maximize the brokerage firms' profits. First, we find that individual investors respond to reports on neglected firms while institutional investors do not. We then document that tipping inferred from abnormal trading responses is concentrated on neglected firms characterized by low analyst coverage. Furthermore, we find that it is primarily institutional investors who are on the receiving end of the tipping as measured by pre-release abnormal returns and pre-release net purchase position. Finally, brokerage firms appear to tip domestic institutional investors when reports are positive while they tip foreign institutional investors when reports are negative. Specifically, domestic institutional investors increase their net pre-release purchase volume when reports are positive while foreign institutional investors reduce their net pre-release purchase volume when reports are negative. These findings are consistent with brokerage firms tipping clients who can contribute the most to the firms' trading commission revenues. We make a contribution to the literature by finding evidence that analyst tipping is primarily a wealth transfer from individual investors to domestic institutional investors.

Using actual equity transactions between member firms in Korean business groups, we examine the effect of firm characteristics on transaction magnitude and the stock market's response to investment in the internal capital market (ICM). On the acquiring firm's side, financial slack is positively associated but controlling shareholder ownership is negatively associated with transaction magnitude. Profitability (leverage) of the issuing firm is negatively (positively) associated with transaction magnitude. Growth of the firms involved in the transaction does not affect the transaction magnitude or the stock market's response. The stock market responds negatively to diversification and large cash of the acquiring firm. Our findings suggest that idle cash of a firm with high ownership of minority shareholders is the source of funds in ICM, and such funds are directed to poorly performing affiliated firms, which are under the influence of the same controlling shareholder.

We examine the measurement and determinants of asymmetric foreign exchange exposure with a focus on the role of firms' usage of foreign currency-denominated debt (FCDD). Employing a large sample of Korean firms, we find significant asymmetries in exchange exposure. We also find that firms with dollar-denominated debt exhibit substantially lower asymmetries in exchange exposure than firms without such debt. Most interestingly, both a firm's export ratio and dollar-denominated debt ratio are significantly related to its asymmetric exposure but in the opposite direction. In contrast, a firm's option trading has little impact on its asymmetric exchange exposure. Consistent with the FCDD effect hypothesis, these results provide strong evidence that increased asymmetries in exchange exposure resulting from exporting activities can be effectively reduced by the usage of FCDD. Our results offer a broadly applicable implication that firms with high asymmetric exchange exposure can effectively manage their exchange risk from operating activities by selectively using exporting and FCDD financing.

In a market crowded with many small funds, a fund manager is likely to manage more than one fund. We hypothesize and confirm that, in this situation, fund managers tend to neglect very small funds by simply holding cash rather than investing because of their limited time and efforts. By examining the Korean fund market, where one fund manager simultaneously manages about ten funds on average, we find that the cash holding ratio monotonically decreases with fund size. While small funds perform worse than large funds in appearance, the negative relationship between size and performance disappears after being controlled for the cash holding ratio.