Joung Hwa Choi

Corporate governance and the availability of external financing can be important determinants of corporate cash holdings. In this research, in line with Opler et al. (1999), the authors find that Korean firms’ cash holdings are affected by firm-level characteristics including firm size, leverage, market to book, cash flow ratio, net working capital, and cash flow volatility in addition to corporate governance. Rather than agency-prone, the authors can ascribe the increase in cash holdings to the precautionary corporate demand for cash (Campbell et al., 2001). The authors also report that operating risks stemming from cash flow volatility, unavailability of external finance, credit rating downgrades, etc., may be associated with precautionary corporate demand for cash. Lastly, it is documented that corporate governance proxied for by block and/or insider ownership stakes is inversely associated with corporate cash holdings.

Keywords: demand for money, corporate governance, corporate cash holding.
JEL Classification: G39, E41, G34

Corporate governance is an envelope for the mechanisms, processes and relations through which corporations are controlled and guided. Consequently, corporate governance affects operational performance and, in turn, stock returns, as Gompers et al. (2003) find. In this research, we use the Korea Corporate Governance Stock Price Index (KOGI) to test a possible linkage between corporate governance and shareholder wealth in Korea.Factor mimicking portfolios sorted per KOGI are constructed to estimate a corporate governance risk factor (“good minus bad”). By augmenting this new factor to the existing factor models (Fama and French, 1993; Carhart, 1997) to fit multiply imputed data, we find evidence that corporate governanceinfluences stock pricing in Korea.

Keywords: CG; Risk factor; Factor-mimicking portfolio; Long-short portfolio; Multiple imputation.
JEL Classification: G11, G12, G34, C11

Insurance is known in the literature as a contribution to economic growth. In our cross-country analysis, we found out that insurance density also appears to subdue macro volatility. In other words, an overall expansion of insurance coverage in an economy cushions aggregate risks. This empirical inference remains robust to controlling for other covariates known to co-move with economic activities. Given that the contribution of insurance to economic growth is more impactful in developing countries than in industrialized economies, not only this result is appealing to economic intuition, but also extends the claims in the existing researches.