Asia-Pacific Journal of Accounting & Economics
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Volume 19, Issue No. 2, August 2012

  • Tae H. Choi, Eunchul Lee and Jinhan Pae, The equity premium puzzle: empirical evidence for the “Korea Discount”, 143-166

  • Firat Demir, Jiandong Ju and Yin Zhou, Income inequality and structures of international trade, 167-180

  • Jianhua Zhang, Baozhi Qu, Zhong Xu and Peng Wang, Market development and bank profit efficiency in China: application of the generalized Malmquist productivity index, 181-197

  • Yi-Cheng Liu, Wen Yang and Chao-Cheng Mai, The competitive position of Shanghai in the Asia-Pacific region: a comparative study, 198-209

  • Hsihui Chang, Sang-Hyun Suh, Edward M. Werner and Jian Zhou, The effect of SOX on the predictability of future cash flows in litigious and non-litigious industries, 210-226

  • Kuo-Feng Kao and Cheng-Hau Peng, Production efficiency, input price discrimination, and social welfare, 227-237

  • Xianhai Huang, Qunyan Sun and Jie Li, Optimal policy choice and asymmetric information in a mixed market, 238-251

  • Suresh Govindaraj, Mahesh Kumar and Bharat Sarath, ERRATUM - The effects of correlated demand on pricing, inventory, and production, 252


The equity premium puzzle: empirical evidence for the “Korea

Tae H. Choia*, Eunchul Leeb and Jinhan Paec
a KDI School of Public Policy and Management
b Dongduk Women’s University
c Korea University

This study examines the cost of equity capital (COC) and the factors that influence the COC of listed Korean companies, and compares the COC of Korean companies with that of companies from 31 selected countries. The major research question is whether companies that are listed in an emerging market have a disadvantage as they are underpriced through a higher COC (as compared with companies that are traded in developed markets). Consistent with the “Korea Discount,” we find that the COC is significantly higher for Korean companies than for companies in other countries after controlling for other relevant factors. However, the “Korea Discount” has significantly eased in recent years.

JEL Classifications: G00, G18, M20

Keywords: Analysts’ forecasts; cost of capital; firm characteristics; Korea Discount; Korean stock market


Income inequality and structures of international trade

Firat Demira, Jiandong Jua* and Yin Zhoua
a University of Oklahoma

The effects of trade openness on within-country income inequality in developing countries are found to be inconclusive in existing literature. This study proposes a “threshold effect” to address this issue. We argue that when exports benefit a large portion of population, it is more likely to decrease income inequality within a country; otherwise, increasing exports will likely increase the income inequality. Using a data-set of 55 developing countries from 1981 to 2005, we find that if the employment share of manufacturing industry is above (below) a threshold, the increase in the share of manufactures exports reduces (increases) the within-country income inequality.

JEL Classifications: D31, F16, O15

Keywords: Within-country income inequality; trade openness; manufacturing sector employment; developing countries


Market development and bank profit efficiency in China: application of the generalized Malmquist productivity index

Jianhua Zhanga, Baozhi Qub*, Zhong Xua and Peng Wanga
a People’s Bank of China
b Moscow School of Management

We study the total factor productivity of Chinese banks (the generalized Malmquist productivity index) and the impact of market development on bank profit efficiency using a unique sample of 150 Chinese commercial banks for the 1999–2008 period. Employing an output-oriented stochastic distance function approach, our analysis shows that the productivity growth of Chinese banks over time can be attributed mainly to improvements in technical efficiency and technical change. In addition, the efficiency of Chinese banks is heavily influenced by market development variables, including the proportion of non-state business, level of government intervention in the market, competition in the financial industry and competition in credit allocation. The effects of these factors on bank profit efficiency differ depending on the type of banks.

JEL Classifications: D24, G21

Keywords: Generalized Malmquist productivity index; market development; bank profit efficiency; China


The competitive position of Shanghai in the Asia-Pacific region: a comparative study

Yi-Cheng Liua, Wen Yanga and Chao-Cheng Maib*
a Tamkang University
b Tamkang University and Research Center for Humanities and Social Sciences Academic Sinica

This paper looked at 12 International Financial Centers (IFCs) in the Asia-Pacific region by employing hierarchical cluster analysis and principal component analysis and applying them to 10 financial variables. This study has demonstrated that as a result of increased foreign financial institutions’ participation and the expansion of markets’ size, Shanghai is fast closing up the gap with other major IFCs. Shanghai might pose a challenge not only to Hong Kong but also to Tokyo in the next few years if China’s Government further liberalizes its financial markets to foreigners and augments the range of financial instruments.

JEL Classifications: G15, G20

Keywords: International Financial Center; Shanghai; Hong Kong; Asian-Pacific region


The effect of SOX on the predictability of future cash flows in litigious and non-litigious industries

Hsihui Changa, Sang-Hyun Suhb, Edward M. Wernera* and Jian Zhouc
a Drexel University
b University of Massachusetts Lowell
c University of Hawaii at Honolulu

We investigate whether the role of discretionary accruals in predicting future operating cash flows changes after the passage of SOX. We also examine the information content of discretionary accruals in litigious industries. We find that discretionary accruals are positively associated with future operating cash flows and that discretionary accruals become even more important to predict future cash flows during the post-SOX period. Findings also indicate that litigious industry firms impart greater information content relative to those in nonlitigious industries prior to SOX being issued and that the SOX effect on discretionary accruals is weaker for such firms as a result.

JEL Classifications: C12, C21, M41

Keywords: Discretionary accruals; operating cash flows; SOX; litigious industries.


Production efficiency, input price discrimination, and social welfare

Kuo-Feng Kaoa and Cheng-Hau Pengb*
a Tamkang University
b Fu Jen Catholic University

This paper re-examines the welfare implications of input price discrimination by considering the possibility of the structural change in the final goods market. When the marginal cost difference is moderate, price discrimination is more socially desirable as the upstream firm serves more downstream firms under price discrimination than uniform pricing. Surprisingly, when the marginal cost difference is sufficiently large, although the upstream monopolist serves more downstream firms and more outputs are produced under price discrimination than uniform pricing, the social welfare is lower under price discrimination. This result runs against those prevailing in the literature without market structural change.

JEL Classifications: L13, L16, L43

Keywords: Production efficiency; price discrimination; vertically related markets


Optimal policy choice and asymmetric information in a mixed Market

Xianhai Huanga, Qunyan Sunb and Jie Lia*
a Zhejiang University
b Sun Yat-sen University

In a public-firm monopoly market, we investigate a welfare-maximizing government’s attitude towards the entry of a private firm with private information in cost and the government’s choices over two policy options: a menu of policies and a uniform policy. Two different cases are considered: the case of a domestic private firm and the case of a foreign private firm. In both cases, allowing the entry of the private firm is socially optimal. However, in the first case, policy menu is preferred to uniform policy; in the second case, separation equilibrium does not exist and uniform policy is adopted.

JEL Classifications: L13, L32, P20

Keywords: Asymmetric information; public firm; private firm; mixed oligopoly