Firm size, corporate leverage and corporate dividend: Evidence from Korean banking industry.

This paper examines how the dividend policy of banks is associated with the level of safety of the banks. As the proxy for the safety of the bank, we employ the asset size and leverage measures. Considering that the explicit protection system of deposit insurance backing up the banking industry is prevailing and implicit forbearance policy practiced by the banking regulators generally would not allow the failure of especially large banks, the banks with larger asset size, other things being equal, would be considered safer than smaller banks. Also, following the implications of finance literature, higher leverage is believed to represent higher riskiness and the firms in higher leverage positions would have greater risk-taking incentives to maximize potential upward gains from high profit. From the panel data of Korean banks during 1994-2005, we find that the banks in a safer position significantly pay more dividends. That is, the banks with larger asset size and lower leverage tend to pay more dividends. In the tests employing partitioned samples and interaction variables for risk characteristics, we find more transparent and consistent results.

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FDICIA and Risk Shifting 1n the Banking Industry

International Studies Review ◽

10.1163/2667078x-00701005 ◽

2006 ◽

Vol 7 (1) ◽

pp. 87-116

Author(s):

Seok-Weon Lee

Keyword(s):

Moral Hazard ◽

Risk Taking ◽

Deposit Insurance ◽

Banking Industry ◽

Systematic Risk ◽

Full Sample ◽

Risk Taking Behavior ◽

Federal Deposit Insurance ◽

Asset Size ◽

The U.S

This is an empirical study that examines how the Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 in the U.S. banking industry affects the moral hazard risk-taking incentives of banks. We find that FDICIA appears to be effective in significantly reducing the systematic risk-taking incentives of the banks. Considering that the banks' asset portfolios are necessarily largely systematic risk-related, the significant decrease in their systematic risk-taking incentives provides some evidence of the effectiveness of FDICIA. However, with respect to the nonsystematic risk-taking behavior, the results generally indicate statistically insignificant decreases in the risk-taking incentives after FDICIA. To well-diversified investors who can diversify nonsystematic risk away, nonsystematic risk may not be a risk any more. However, to maintain a sound banking environment and to reduce the risk to individual banks, this result implies that regulatory agents should monitor the banks’ nonsystematic risk-taking behavior more closely, as long as it is positively related to the banks’ failures. We further test the change in the risk-taking incentives by partitioning the full sample into two groups: Banks with higher moral hazard incentives as those with larger asset size and lower capital ratio and banks with lower moral hazard incentives as those with smaller asset size and higher capital ratio. The main result for this test is that, with FDICIA, the decrease in the risk-taking incentives of the banks with higher moral hazard incentives (larger asset-size and lower capital-ratio banks) is less than that of the banks with lower moral hazard incentives (smaller asset-size and higher capital-ratio banks), with respect to both systematic and nonsystematic risk-taking measures. Furthermore, the change in the nonsystematic risk-taking incentives of the banks with higher moral hazard incentives is rather mixed, while their systematic incentives are decreased. These findings imply that the regulatory agents should allocate more time and effort toward monitoring the banks with higher moral hazard incentives with particular emphasis on their nonsystematic risk-taking behavior.

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Does the agency problem exist in Korean banking industry?

Corporate Ownership and Control ◽

10.22495/cocv6i4sip6 ◽

2009 ◽

Vol 6 (4) ◽

pp. 551-555

Author(s):

Seok Weon Lee

Keyword(s):

Panel Data ◽

Cash Flow ◽

Risk Taking ◽

Banking Industry ◽

Agency Problem ◽

Market Discipline ◽

Financial Industry ◽

Government Regulations ◽

Banking Regulations ◽

Bank Managers

In this paper, we empirically examine whether the agency problem exists in Korean banking industry. Banking industry may be a very special type of industry where government regulations are prevailing and market discipline may function less effectively than in other industries. Investors and even bankers themselves may believe that regulators will not let them fail because it can cause much bigger damage to the economy especially when banking regulations are very loose. Therefore investors would not have great incentives to monitor the behavior of banks, and bank managers could pursue riskier strategies than the firms in other industries do without worrying about the possible loss of their jobs due to the bad performance and reputation of their management. But when regulations are very tight bank managers would realize that closing down and bankruptcy of the bank is not hard to occur, and therefore, they would act in a more conservative and risk aversive manner, which is the case where the agency problem arises. From the analysis of the panel data, we find consistent evidences that the agency problem does not appear to exist in Korean banking industry before 1998 period, when regulations are very loose, which is consistent with our presumption. We find positive associations between the level of outside share ownership and risk-taking for the period of pre-1998. But this association becomes weaker for the post-regulation period 1998-2005. As the regulations become tighter, agency problem becomes bigger which will be the loss, anyway, of firm‟s cash flow, while the regulations may have some effectiveness in bringing more safety of the industry. Thus, regulators and the firms in financial industry need to develop better systems to minimize the costs associated with agency problem when making regulatory reforms.

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Moral hazard, agency problem and ownership structure

Corporate Ownership and Control ◽

10.22495/cocv3i2p12 ◽

2006 ◽

Vol 3 (2) ◽

pp. 116-124

Author(s):

Seok Weon Lee

Keyword(s):

Moral Hazard ◽

Ownership Structure ◽

Risk Taking ◽

Banking Industry ◽

Agency Problem ◽

Equity Capital ◽

Managerial Ownership ◽

Banking Regulations ◽

Increased Risk ◽

Asset Size

Using a sample of recent Korean banking industry for 1994-2000, we examine how the effectiveness of managerial ownership is affected by the regulatory regimes in banking industry and the banks’ moral hazard incentives. We found that the managers of the banks in the higher moral-hazard group (the group of banks that are known to have greater moral hazard incentives in the literature such as the banks with lower charter value, greater asset size and lower equity capital) tend to have greater incentives to align their interests to those of stockholders by taking on more risk as managerial ownership rises, compared to the banks in the lower moral-hazard group, but only over the relatively deregulated period 1994-1997. Thus, in terms of only addressing the owner/manager agency problem, the owner/manager agency problem of banks can be easily addressed by changing their insider holdings or ownership structure, in particular when the banks have relatively higher moral-hazard incentives and banking regulations are loose. But we also found that this increased risk-taking has not ultimately resulted in better performance of the bank. This result may suggest a very important policy implication regarding the safety of the banking industry. If the increased risk-taking with greater managerial ownership does not contribute to improving the bank profitability, taking on more risk could end up with only increasing the possibility of failure of the bank. Therefore, the increase in insider holdings to address the owner/manager agency problem may have to be associated with closer and more frequent monitoring of the banks’ risk-taking behavior.

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Does Diversity in The Boardroom Add Value to a Firm?

American Journal of Management ◽

10.33423/ajm.v18i5.255 ◽

2018 ◽

Vol 18 (5) ◽

Keyword(s):

Firm Performance ◽

Panel Data ◽

Firm Size ◽

Significant Influence ◽

Negative Influence ◽

Positive Influence ◽

Future Research ◽

Board Composition ◽

Board Diversity

This study examines whether board diversity affects firm performance. We investigate this study using panel data of a sample of S&P 500 firms during a 12 year period. After controlling for industry, firm size, and other board composition variables, we find that all three board diversity variables of interest – gender, ethnicity, and age have a significant influence on firm performance. While ethnicity and age have a positive influence on firm performance, it was found that gender has a negative influence. Implications for future research are discussed.

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FAKTOR DETERMINAN PEMBENTUK STRUKTUR MODAL PADA PERUSAHAAN SEKTOR FARMASI PERIODE 2012 - 2016

Jurnal Riset Manajemen dan Bisnis (JRMB) Fakultas Ekonomi UNIAT ◽

10.36226/jrmb.v2is1.57 ◽

2017 ◽

Vol 2 ◽

pp. 241-250

Author(s):

Neng Ria Kanita ◽

Hendryadi Hendryadi

Keyword(s):

Panel Data ◽

Capital Structure ◽

Firm Size ◽

Stock Exchange ◽

Pharmaceutical Manufacturing ◽

Manufacturing Companies ◽

Purposive Sampling ◽

Panel Data Regression ◽

Data Regression ◽

Partial Effects

This study aims to examine the simultaneous and partial effects of profitability, liquidity, and firm size on capital structure. The sample is 10 pharmaceutical manufacturing companies listed in Indonesia Stock Exchange period 2012-2016, using purposive sampling. The technique of analysis used is panel data regression (pooled regression). The results showed that the selected model is the fixed effect. Simultaneously NPM, CR, and Firm Size have a significant effect on capital structure. Partially NPM has a negative and significant effect on capital structure. CR partially have a negative and not significant effect on capital structure. Partially Firm Size have a positive and significant effect on capital structure. Variables that have a significant effect on capital structure are NPM and Firm Size. While CR does not significantly affect the capital structure. Keywords: Capital Structure, Profitability, Liquidity, Firm Size

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