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Korean Journal of Financial Studies 2011;40(5):801-827.
Published online December 31, 2011.
An Empirical Study on Conflict of Interests of Financial Services Industry In Korea: Evidence from IPO Underwriting and Asset Management
Young S. Park, Woon Youl Choi, Jin Ho Lee
금융투자회사 업무의 이해상충에 관한 실증연구
박영석, 최운열, 이진호
Abstract
We study an imbalanced concentration of funds` stock investment in IPO stocks. One of the causes of this phenomenon is the conflict of interests that arises between IPO underwriting by a securities firm and the IPO stocks` inclusion in a fund managed by the firm`s affiliate asset management company. According to our analysis, we confirm two facts. First, a conflict of interest arises when an IPO underwriter tries to include the IPO stocks in a fund managed by its affiliate asset management company. Specifically, it is found that the IPO manager`s market share in fund distribution and fund sales fee impose a direct impact on the inclusion of the IPO stocks in the fund. This reassures the possibility that an IPO underwriter capitalizes on its market power and tries to earn high commission income if it sells a fund that includes the IPO stocks and is managed by its affiliate asset management company. Second, the possibility of a conflict of interest arising from the affiliation of an IPO lead manager is confirmed through the action the underwriter and its affiliate take in the quarter that the IPO takes place, and the subsequent quarter. It is observed that underwriters pursue the interest of fund investors and cause a conflict of interest problem by trying to include only undervalued IPO stocks, that show high returns on the first day of listing, in the fund managed by its affiliate asset management company. However, the stocks that are included in the affiliate`s fund in the subsequent quarter are unrelated to the IPO underpricing. This implies that the IPO stocks that are not beneficial for underwriting are usually included in the affiliate`s fund portfolio after IPO. The results of this study are consistent with the measures stipulated in Article 85-2 of the Financial Investment and Services and Capital Markets Act, that were designed to prevent the potential conflict of interest that may arise when a securities firm engages in both underwriting and asset management businesses. This study comes at an opportune moment to add another reason to administer the law.
Key Words: 이해상충현상,정보비대칭,투자은행업무,펀드의 주식편입,Conflicts of Interest,Information Asymmetry,Investment Banking,IPO Underpricing,IPO저가발행현상,IPOs Selection of Funds
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