- Log In/Sign Up
- P-ISSN1738-3110
- E-ISSN2093-7717
- SCOPUS, ESCI
ISSN : 1738-3110
A Study on the Financing Decision of Retail Firms Listed on Korean Stock Markets
Abstract
Purpose - This article aims to examine whether the stock issuance of firms in the retail industry follows Myers' (1984) pecking order theory, which is based on information asymmetry. According to the pecking order model, firms have a sequence of financing decisions, of which the first choice is to use retained earnings, the second one is to get into safe debt, the next involves risky debt, and the last involves finance with outside equity. Since the 2000s, the polarization of the LEs (Large enterprises) and SMEs (Small and Medium Enterprises) arose in the retail industry. The LEs exhibited an improvement in growth and profitability, whereas SMEs had a tendency to degenerate. This study contributes to corroborating the features of financing decisions in the retail industry distinguished from the other industries. Research design, data, and methodology - This study considers the stocks listed on the KOSPI and KOSDAQ markets from 1991 to 2013, and is more concentrated on the stocks in the retail industry. The data were collected from the financial information company, WISEfn. The empirical analysis is conducted by employing two measures of net equity issues (and), which were introduced in Fama and French (2005), and can be calculated from firms' accounting information. All variables are generated as the aggregate value of the numerator divided by aggregate assets, which, in effect, treats the entire sample as a single firm. Substantially, the financing decisions of the firms were analyzed by examining how often and under what circumstances firms issue and repurchase equity. Then, this study compares the features of the retail industry with those of the other industries. Results - The proportion of sample firms that show annual net stock issues reaching the level of the year's average was 54.33% for the 1990s, and fell to 39.93% per year for the 2000s. In detail, the fraction of the small firms actually increases from 45.08% to 51.04%, whereas that of large firms shows a dramatic decline from 58.94% to 24.76%. Considering the fact that the large firms' rapid increase in growth after the 2000s may lead to an increase in equity issues, this result is rather surprising. Meanwhile, net stock repurchases of assets are considerably disproportionate between the large (-50.11%) and the small firms (-15.66%) for the 2000s. Conclusions - Stock issuance of retail firms is not in line with the traditional seasoned equity offering based on information asymmetry. The net stock issuance of the small firms in the retail industry can be interpreted as part of an effort to reorganize business and solicit new investment to resolve degenerating business performance. For large firms, on the other hand, the net repurchase can be regarded as part of an effort to rearrange business for efficiency and amplifying synergy across business sections through spin-off. These results can help the government establish a support policy on retail industry according to size.
- keywords
- Retail Industry, Asymmetric Information, Equity Issues, Repurchase, Pecking Order
Reference
Ahn, Byung-Joo, Chae, Joon, & Jung, Jin-Young (2011). What Drives Firms` Financial Decisions? Evidence from the Field. Korean Journal of Financial Studies, 40(1), 219-260.
Cho, Young-Sang (2014). Retailing and Public Policy: A Comparative Study of South Korea and Foreign Countries. Journal of Distribution Science, 12(7), 77-88.
Eckbo, B.E., & Masulis, R.W. (1992). Adverse selection and the rights offer paradox. Journal of Financial Economics 32(3), 293–332.
Fama, Eugene F., & French, Kenneth R. (2002). Testing tradeoff and pecking order predictions about dividends and debt. Review of Financial Studies, 15, 1-33.
Fama, Eugene F., & French, Kenneth R. (2005). Financing decisions:who issues stock? Journal of Financial Economics, 76(3), 549-582.
Frank, M.Z., & Goyal, V.K. (2003). Testing the pecking order theory of capital structure. Journal of Financial Economics, 67, 217-248.
Hertzel, M., Lemmon, M., Linck, J.S., & Rees, L. (2002). Long-run performance following private placements of equity. Journal of Finance, 57(6), 2595–2617.
Kang, Min-Jeong, & Sul, Hoon-Ku (2013). A Difference Analysis of Determinants of Capital Structure in Hospitality Industry. Korean Journal of Hospitality Administration, 22(3), 55-74.
Kim, Dae-Yun, & Kwon Sung-Ku (2013). A Study on the Korea Distribution Promotion Policy and Adjustment Policy. Journal of Distribution Science, 11(4), 89-97.
Kim, Nam-Gon (2009). The Impact of Firm Characteristics and Market Conditions on Security Issues. Korean Corporaion Management Review, 16(2), 167-182.
Kim, Suk-Kyung, Kim, Chun-Gon, & Kim, Ki-Hwan (2011). Structural Change Analysis and Policy Suggestions for Strengthening Competitiveness of Korean Retail Industry. Korea: Korea Institute for Industrial Economics & Trade.
Kraus, Alan, & Litzenberger, Robert H. (1973). A State-Preference Model of Optimal Financial Leverage. Journal of Finance, 28(4), 911-22.
Lemmon, Michael L., & Zender, Jaime F. (2010). Debt capacity and tests of capital structure theories. Cambridge Univ Press.
Lee, Jae-Hyung (2010). Policy Issues and Features of Korean Distribution Industry, Research Report (2010-09). Korea Development Institute. from https://www.kdi.re.kr/report/report_class_etc.jsp?kdi_code=&pub_no=11698&author=&showListSize=10&type=&pageNo=1.
Myers, Stewart C., & Majluf, Nicholas S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187-211.
Myers, Stewart C. (1984). The Capital Structure Puzzle. Journal of Finance, 39(3), 575-92.
Park, Chul-Ju (2013). A Comparative Study on the Distribution Regulation Policy in Korea and Foreign Countries. Journal of Distribution Science, 11(9), 43-49.
Shyam-Sunder, & Myers, Stewart C. (1999). Testing Tradeoff Against Pecking Order Models of Capital Structure. Journal of Financial Economies, 51, 219-244.
Wruck, K.H. (1989). Equity ownership concentration and firm value:evidence from private equity financing. Journal of Financial Economics, 23(1), 3–18.
Yu, Hee-Kyung (2005). Analysis of Financial Factors Affecting Capital Structure in the Lodging Industry. Korean Journal of Hospitality Administration, 14(1), 103-117.
- Downloaded
- Viewed
- 0KCI Citations
- 0WOS Citations