A quantitative perspective of Porter's industry forces framework for investment analysis

Porter's industry forces framework is an important tool for external analysis of firms, but its qualitative nature presents numerous limitations to be used in investment analysis. This study introduces a quantitative perspective of the framework using financial information proxies. This allows investors to gauge the external factors quantitatively and to gain enhanced framework usability. In order to test its validity, the correlation movements of our quantitative perspective have been analysed. For demonstration of enhanced usability, our quantitative perspective, alongside machine learning models, was used to predict business performances. The empirical results indicate that our quantitative perspective of the framework corroborates with its original definition and that it exhibits enhanced usability than the original framework.     

Is the environment‐friendly factor attractive to customers when purchasing electric vehicles? Evidence from South Korea

In a bid to reduce greenhouse gas emissions, several countries worldwide are implementing policies to promote electric vehicles (EVs). However, contrary to expectations, the diffusion speed of EVs has been rather slow in South Korea. This study analyzes consumer preferences for the technological and environmental attributes of EVs and derives policy and environmental implications to promote market diffusion of EVs in South Korea. We conduct a choice‐based conjoint survey of 1,008 consumers in South Korea and estimate the consumer utility function using a mixed logit model considering consumer heterogeneity. Based on the consumer utility function, we analyze consumers' willingness‐to‐pay (WTP) for EV attributes such as driving range, charging method, charging time, autonomous driving function, carbon dioxide (CO₂) reduction rate, and purchase price. The results indicate that the current low acceptance of EVs is due to their relatively high price and lack of a battery charging technology that satisfies consumers' expectations of the charging method and time. One interesting finding is that Korean consumers have a relatively higher WTP for the CO₂ reduction rate of EVs than consumers in other countries; however, they do not consider CO₂ reduction over other technological attributes when choosing EVs. This implies that the rate of CO₂ reduction of EVs is not an important factor for South Korean consumers when buying EVs. We also calculate the effect of CO₂ reduction with the market penetration of EVs and find that CO₂ reduction through the diffusion of EVs depends on the country's electricity generation mix.     

Heterogeneity and netting efficiency under central clearing: A stochastic network analysis

This paper examines the effect of heterogeneity in clearing members’ exposure management practices under central clearing. Our network model specifies the dynamics of prenetted interbank exposures to shape interdependent exposure distributions beyond normality. Employing over-the-counter derivatives market data from the U.S. Office of the Comptroller of the Currency, our simulation results indicate that heterogeneity in bank-to-bank exposure dynamics is systemically desirable, while the entire system benefits more from the central clearing in more homogeneous environments. Policymakers should incentivize individual clearing members to enhance resiliency and stability in counterparty exposure management to maximize netting efficiency under central clearing.     

Personalized goal-based investing via multi-stage stochastic goal programming

In this paper, we propose a goal-based investment model that is suitable for personalized wealth management. The model only requires a few intuitive inputs such as size of wealth, investment amount, and consumption goals from individual investors. In particular, a priority level can be assigned to each consumption goal and the model provides a holistic solution based on a sequential approach starting with the highest priority. This allows strict prioritization by maximizing the probability of achieving higher priority goals that are not affected by goals with lower priorities. Furthermore, the proposed model is formulated as a linear program that efficiently finds the optimal financial plan. With its simplicity, flexibility, and computational efficiency, the proposed goal-based investment model provides a new framework for automated investment management services.     

Does local political support influence financial markets? A study on the impact of job approval ratings of political representatives on local stock returns

Using data on job approval ratings of governors, U.S. senators, and the president, we find that firms located in states with high approval ratings outperform firms located in states with low approval ratings by .64% per month. Furthermore, this relationship is stronger when investors are actively involved in politics, when local politicians are closer to the center of political power, for small firms that have a larger proportion of local investors, and for financially strong areas where investors are ready to execute investments in local stocks. Overall, our study shows that investors’ political sentiment is important in determining stock returns.     

Auditors' Responses to Workload Imbalance and the Impact on Audit Quality*

Using detailed data for fieldwork hours and audit hours by rank from audit engagements in Korea, we examine whether audits conducted under workload imbalance, proxied by busy‐season audits, impair audit quality, and how auditors adjust staff assignments for busy‐season audits. We generally find that busy‐season audits are associated with lower audit quality, and that audit firms reduce the involvement of senior auditors during busy‐season audits. In addition, the greater the involvement of senior auditors and junior auditors, the lesser the deterioration in audit quality. Finally, although there is no increase in interim audits in response to workload imbalance during busy seasons, increasing interim audits can mitigate the negative impact of busy‐season audits on audit quality. Our results are relevant to auditors and regulators, who have expressed concerns about the adverse effects of workload imbalance on audit quality.     

Out-of-stock,sold out,or unavailable? Framing a product outage in online retailing

Terms, such as “out-of-stock,” “sold out,” and “unavailable” are commonly used by retailers to communicate a product or brand outage. Although these terms are technically equivalent, prior research on product outage and product scarcity suggest that they may be interpreted and processed differently by consumers. The present research investigated whether the manner in which a product outage was framed elicited different consumer behavioral intentions, attributions, and perceptions in the context of online retailing. Data were collected by means of an online experiment. The experiment incorporated a hypothetical scenario approach in which research participants were asked to react to a particular combination of treatment and blocking factors. Results demonstrated that ceteris paribus, framing a product or brand outage as “sold out” produces fewer negative product and website reactions than does framing it as “out-of-stock” or “unavailable.”     

Institutional Monitoring: Evidence from the F‐Score

The extant literature shows that institutional investors engage in corporate governance to enhance a firm's long‐term value. Measuring firm performance using the F‐Score, we examine the persistent monitoring role of institutional investors and identify the financial aspects of a firm that institutional monitoring improves. We find strong evidence that long‐term institutions with large shareholdings consistently improve a firm's F‐Score and that such activity occurs primarily through the enhancement of the firm's operating efficiency. Other institutions reduce a firm's F‐Score. Moreover, we find evidence that, while monitoring institutions improve a firm's financial health, transient (followed by non‐transient) institutions trade on this information.     

PARTISAN ADVOCATES

This paper studies the problem of an uninformed decision maker who acquires expert advice prior to making a decision. I show that it is less costly to hire partisan agents than impartial agents, especially under advocacy, and that the decision maker prefers partisan advocacy to other forms of institutions. I also extend the literature, originating with Dewatripont and Tirole ( 1999 ), to a setting with contracts that condition on information provided and not just the decision made.