• Journal of the Korea Convergence Society
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• v.8 no.3
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• pp.225-235
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• 2017

Firms employ one of two stock repurchasing methods, either direct open market repurchase or indirect repurchase through trust contracts. Since these two methods have some regulatory differences, managers of firms may use a repurchasing method as a signal to convey the information to the market. Therefore, this study investigates the relationship between stock repurchasing methods and implied cost of equity of firms. The results show that there is a significant and negative relationship between stock repurchase announcement and cost of equity. In addition, the implied cost of equity for firms employing direct open market repurchase is significantly lower than those of firms that use indirect repurchase method. Overall, the market accurately reflects the information conveyed by two stock repurchasing methods into cost of equity of firms.

• Journal of the Korea Convergence Society
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• v.10 no.8
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• pp.217-226
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• 2019

This study examines the effect of the wedge between voting rights and cash flow rights of controlling shareholders on the implied cost of equity. Prior studies posit that controlling shareholder's voting rights exceeding cash flow rights causes expropriating minority shareholders. Using date from 793 group-affiliated Korean firms for 10 years from 2005 to 2016, the result shows that there is a positive and significant relationship between controlling shareholders' wedge and implied cost of equity. This result implies that investors regard the controlling shareholders' wedge as potential agency cost in which they require additional risk premium because controlling shareholders have a strong incentive to pursue their private interests trough tunneling practices.

• Asia Pacific Journal of Business Review
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• v.4 no.1
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• pp.1-34
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• 2019

This study investigates whether and how a firm's cost of equity capital is influenced by the extent of a firm's real earnings management (REM). Using a large sample of Hong Kong and Chinese firms over the 9-year period 2009-2017, we find that our implied cost of equity estimates are positively associated with both the extent of REM and the extent of accrual-based earnings management (AEM), but the positive association is stronger for REM than for AEM. We also provide evidence suggesting that the effect of AEM and REM on the cost of equity is more pronounced for Hong Kong firms than Chinese firms, and within Chinese firms, it is less pronounced for the state-owned enterprises (SOEs). Collectively, our results suggest that while both REM and AEM exacerbate the quality of earnings used by outside investors, REM does so to a greater extent than AEM, and thus the market demands a higher risk premium for REM activities than for AEM activities and that this cost of capital-increase effect is more prominent in a developed market like Hong Kong and mitigated by state ownership in China because of investors' expectations for a lower level of detriments to firm fundamentals by REM due to government's protection in a less developed market like China.