Survey of companies find that operational hedging is more prevalent when compared to financial hedging. While operational and financial hedges can act as substitutes, literature has various views on how the two hedging strategies are related to each other. One main reason is that literature on operational hedge set strong assumptions on the financial environment such as consistent interest rates. We aim to provide a better understanding of operational hedging by relaxing the assumption. We find that increases in future interest rate risks have a negative impact on operational hedging and vice versa. However, the relationship is short lived and disappears within one year, suggesting that firms immediately lower their slack levels when financial cost is expected to rise. The implication for companies is that the substitution of the hedging methods should be approached in a dynamic manner.

This study examines whether conflicts of interest induced by group affiliation between asset management companies (AMCs) and brokerage firms compromise the independence of the affiliated analysts’ forecasts. That is, we investigate whether affiliated analysts treat stocks held by mutual funds in the same chaebol group differently from other stocks. Our main results indicate that analyst forecasts are selectively optimistic about the stocks that are of the greatest interest to affiliated AMCs. Specifically, analysts produce more accurate forecasts for stocks held by affiliated AMCs in general, while their recommendations and forecasts become more optimistic and less accurate as the amount of funding invested in such stocks increases within a fund held by affiliated fund managers. Selective optimism is also found when the asset management fees are high and when those stocks are newly added to the funds held by affiliated fund managers.

The crossholding of multiple firms by major shareholders in the same industry is known as common ownership. In this article, we examine how common ownership affects the carbon-related disclosure practices of cross-held firms. We report that common ownership decreases a firm’s propensity to disclose carbon information as well as the quality of such disclosures. A one standard deviation increase in measures of common ownership decreases the likelihood of participating in the Carbon Disclosure Project (CDP) survey by as much as 19.4%. Our results are robust to exogenous events, such as changes in common ownership and robustness tests, including Heckman two-stage regression and the exclusion of the financial sector. Further analyses demonstrate that the negative impact of common ownership on carbon disclosures is stronger in carbon-intensive sectors than in other sectors and for hard than for soft disclosures.

Although Australian regulators recommend that remuneration committees (RC) comprise directors who are independent, we argue that independence is not sufficient to avoid agency problems and counter managerial power. We evaluate a range of RC characteristics associated with executive compensation packages. We show that when independent directors, an independent chair or other firms’ CEOs sit on the RC, excess pay is likely to be lower. Furthermore, pay-performance sensitivity is higher when there are more senior directors on the RC. However, when directors are busy or the RC is diverse, executives are more likely to be overpaid. Overpayment and lower pay-performance sensitivity are also associated with the RC being influenced by the CEO, such as when the CEO sits on the RC or has appointed a high proportion of directors. Our results indicate that RC independence alone is insufficient for effective executive remuneration and we recommend appointing senior, experienced and less busy directors to increase RC effectiveness. JEL Classification: G34, G38, J33, J38

We examine the connection between firm performance and a CEO's previous position (inside or outside the firm), using Covid-19 as an exogenous shock. Firms led by insider CEOs outperformed those led by outsider CEOs in terms of return on assets during the Covid-19 crisis period in 2020, but there was no performance differential in the period before the crisis. Additional tests indicate that outperformance under insider CEOs is observed in firms holding more cash and firms with a higher proportion of internally promoted non-CEO executives. These findings have important implications for boards of directors making CEO appointments.

Two main strategies, home and hotel isolation, have been used to isolate COVID-19 cases in most countries. Both have proven to be somewhat medically effective, but the costs to produce the desired outcome remain unclear. We used a decision tree model to compare alternatives and a simulation model to determine the household structure and provide recommendations for the most cost-effective way to isolate a COVID-19 patient in two Australian States, New South Wales (NSW) and Western Australia (WA). The results show that although the average cost of isolating a confirmed case at home is lower than that of a hotel quarantine, it is demonstrable that the decision depends on household size and the ages of household members. If the household members’ ages are old or the household size is large, the expected mean cost of home quarantine might be higher than hotel quarantine. Our study, therefore, provides the government with a cost-effective insight into making quarantine policies.

Among the several pandemic intervention measures, two main strategies are proposed to isolate a COVID-19 patient with mild symptoms, isolating in the home which the patient may be sharing with other household members or isolating the patient in a hotel room to prevent his/her interaction with other householders. Australia practices home-isolation of confirmed cases with mild symptoms, suspected cases (people with symptoms awaiting laboratory results) and close contacts of cases, which ultimately increases the risk of infection of other household members regardless of their numerous hygienic actions. In this study, we use a decision tree model to compare the cost of these alternatives and provide insightful recommendations for policymakers and government members regarding the most cost-effective way of isolating a COVID-19 patient. Although, the cost of isolating a confirmed case in his/her home in an average Australian household, $1,248.00, is lower than the total cost of isolating a confirmed case in a hotel room, $4,069.80, we report that the decision should be reversed depending on the household size and the secondary household attack rate.

OBJECTIVES:To describe how health care crisis resulting from the COVID-19 pandemic in South Korea has led to innovation and changes to government policy. This paper presents the significant cluster events, relevant developments of innovation, and economical impact in Korea that could inform policy makers on how to respond to health crises in the future. METHODS:Health care, economy, epidemiological data are collected from various sources including the Korea Centers for Disease Control and Prevention (KCDC) or other government sources. RESULTS:The KCDC jointly with medical professionals developed a series of innovations such as 1) Full contact tracing and rapid testing with a 12 h turnaround and 10 min movement tracking systems, 2) transparent disclosure of all contract tracing data to the public through a central database, 3) Drive-Through and Walk-Through testing methods, and 4) a 4 tier patient severity index and community treatment isolation centers. Korea moved from the 4th in the world for total confirmed cases in March down to 76th in August. CONCLUSIONS:Expedited enforcement of amended legislation acts to protect the healthcare workforce resulted in only 10 healthcare professionals contracting the virus while caring for Covid-19 patients. This has resulted in minimal human capital loss and the government was able to re-direct existing medical workforce to areas in need. The quarantine strategies implemented resulted in little need to lock down the whole economy but also limited the cost spent to gain a year of life to 193,848 Won (US$163).

Predictive models of stock returns are often criticized for generating spurious predictability, unstable predictive relationship, and poor out-of-sample forecasting performance. This paper addresses these issues in the context of four major South Asian equity markets. We provide a bias corrected estimate of the relationship of future stock returns to dividend yield and interest rate. We use a restricted vector autoregressive model, draw statistical inferences from a wild-bootstrap method with superior size and power properties, and allow model parameters to vary over time. Dividend yield is a significant predictor in both in- and out-of-sample (OOS) in two countries, while interest rate exhibits significant predictability in all four markets. Imposing theoretically motivated restrictions on model parameters appears to improve OOS predictability. Finally, time variation in return predictability is found to be linked to countercyclical risk premium and persistence of the predictor variables.

This article investigates the role corporate governance plays in determining firm Enterprise Risk Management (ERM) practices. In particular, it evaluates the extent to which ERM practices adopted by Australia's top companies comply with Australian Securities Exchange (ASX) risk management recommendations based on firms' mandatory annual report disclosures. The results show the independence and separation of the role of CEO from that of board chair is important in actively monitoring corporate risk management as is the existence of a separate audit committee. Also, firms with corporate boards and audit committees which meet more frequently have higher ERM compliance than firms with less active corporate boards and audit committees. The long tenure of the CEO exerts a negative influence on ERM compliance while the percentage of female directors on corporate boards is positively associated with ERM compliance levels. In addition, firms which have improved their ERM compliance levels have better future performance compared to other firms. However, this positive relationship is found only in firms with strong governance.

Ex ante predictors of stock returns must exhibit explanatory power across the feasible set of investments. But empirical results of factor pricing models that incorporate firm investment and profitability cannot explain the apparently high returns of US small stocks with very high investment levels and very low profitability. Whilst these stocks comprise only a small fraction of US data sets, this is not the case across global markets. Using a data set that is concentrated with stocks that exhibit high investment despite low profitability, we demonstrate that such factor models are limited in their explanatory power over these stocks.

This study examines whether the group affiliation between asset management firms and brokerage firms influences sell-side analyst recommendations. Using fund holdings data of mutual funds firms belonging to business groups in Korea (i.e., chaebols), we examine whether affiliated analysts differently treat stocks held by fund management firms in the same chaebol from other stocks. Our main results show that analysts provide more accurate forecasts on affiliated stocks, indicating that analysts take advantage of information on those stocks shared with their affiliated fund managers. Although our overall results support the information sharing argument, analysts are found to be selectively optimistic about highly valuable stocks to affiliated fund managers.

This study is the first to examine liquidity commonality, a measure of liquidity risk, in the U.S. secondary corporate loan market. Liquidity commonality varies substantially across market states, being completely absent during more benign market conditions. The results have implications for banking portfolio management, the pricing of liquidity risk and for regulators interested in the time-variation of liquidity risk in illiquid markets.

The level of firm investment, along with firm profitability, has been shown to be empirically powerful asset pricing factors in the US and other markets. The q-factor model of Hou, Xue, and Zhang (2014), and the 5-factor model of Fama and French (2014a), both rely on factors capturing the interrelationship of firm investment and profitability. The models struggle in relation to small, high-investing and low-profitability stocks, a characteristic that is common to Australian firms. Using a sample of Australian stocks over the sample period of 1975-2013, we show that the profitability factor is virtually non-existent, despite numerous tests and iterations of the factor. The addition of a profitability factor provides trivial explanatory power when compared to firm size and investment. We interpret these results as evidence that the investment-profitability rationale that underpins both models is incomplete. Further, we confirm the results of Fama and French (2014a), who report that the explanatory power of the HML factor is subsumed when combined with investment and profitability. Finally, we provide the setting for a comparison of the q-factor and 5-factor models. Given our findings regarding the profitability and HML factors, we report no dominant model across a range of testing assets.

We explore the link between firm-specific variations in stock returns and firm fundamentals in the context of a simple present value framework and test the effect of market openness and firms' industry belonging on stock price informativeness in Korea. Using detailed accounting data and an extensive control for firm-specific characteristics, we find that alternative proxies of cash flow shocks explain a significant part of the variation in firm-specific returns. The effect, however, is not uniform across market sectors. Although greater foreign shareholding in a firm is important to establish a stronger positive linkage between cash flow shocks and stock returns variation prior to the Asian financial crisis, this condition is not necessary after the Korean market was fully opened up to the foreign investors in the post-crisis period.