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보고서 1
Big Tech in Finance and Fair Competition [23-02]
Senior Research Fellow Lee, Seokhoon and others / Jan. 27, 2023
As the presence of large online platform companies called big tech grows in the provision of financial services, fair competition related to big techs is emerging as a major issue in the financial services industry. A recent BIS report predicts that big techs can eventually change the current market structure centered on financial services firms. The problem is that big techs can take the lead in the financial platform due to an inadequately prepared regulations rather than their potential technology and innovation capabilities. In this regard, it is necessary to secure fair competition related to big techs through proper regulations, and this study examines this issue focusing on the preparation of an appropriate regulatory system for big-techs’ anti-competitive behavior and the design of open banking that can promote fair competition.

Big techs have significant market power in their core platform. They can reduce costs by building an ecosystem consisting of services from multiple platforms on one platform, and also enjoy network effects. Big techs can also induce consumers to choose their own financial services through the design of the platform or ranking in search results, and can bundle subscription or use of a specific platform with financial products. Big techs can take advantage of this advantage to eventually limit competition by driving competitors out of the market or preventing the entry of potential competitors. In addition, big techs can utilize vast amounts of consumer data in the platform competition in the retail finance sector, and the gap in data held between big tech and competing platforms can lead to differences in service quality and undermine the competitive environment in the market. In response to this problem, many countries around the world are preparing systems for data portability and privacy. In particular, open banking, which gives financial consumers data portability to support fintechs’ entry into financial services sector, is being adopted in many countries.

Major countries such as the EU, the US, and the UK are preparing separate ex-ante regulations specifically focusing on big techs. Regulations in these countries include provisions to secure market competition, such as designation of regulated big tech, restrictions on data use, duty to provide data portability and interoperability, and ex-ante ban on corporate takeovers, and to prevent abuse of market dominance, such as prohibition of preferential treatment for own products.

Although open banking was introduced for the purpose of facilitating the advancement of fintechs into finance services sector, not only fintechs but also big techs benefit from the open banking, so fair competition of big techs related to open banking is also being discussed as an important issue.

In Korea, Naver and Kakao do not fall under big tech, but they are at the level that requires close monitoring according to the standards stipulated by Digital Markets Act (DMA) of EU. Therefore it is necessary to pay attention to the issue of fair competition related to their financial services business. As for the direction of the financial regulatory policy for fair competition, first, it is necessary to prepare an institutional device for mutual cooperation and coordination between the financial authority and the competition authority, and the financial authority need to respond to big techs’ anti-competitive business practices in order to protect financial consumers. Second, it is necessary to positively review to oblige big techs to share data with  financial services firms subject to financial consumers’ consent.
보고서 1
Exploring relationships between climate risks and asset prices: A survey [23-01]
Research Fellow Park, Hyejin / Jan. 19, 2023
This report examines the implications climate risk on capital markets and asset prices. Climate change is one of the most important issues in our generation and may have significant impacts on the economy. This report provides a comprehensive literature review on the relationship between climate risk and asset prices and conducts an empirical analysis to test whether transition risk is associated with stock returns in Korea. This reports aims to advance our understanding of the financial risks linked to climate change and its implications on asset prices.
The report begins by providing an introduction to financial risks caused by climate change. It explains the two main types of climate-related financial risks: physical risk, resulting from the natural disasters and weather changes due to climate change, and transition risk, resulting from the transition to a decarbonized economy. It discusses how physical and transition risks impact companies and transmit to the economy and financial markets.
The second chapter then surveys the literature on the relationship between climate risks and asset prices. The chapter reviews the rapidly growing literature that studies the effects of climate risk on asset prices, and finds that climate risks have substantial effects on the prices of assets that are exposed to such risks. This chapter then turns to discussion of scenario-based climate risk assessment methodologies and presents examples of climate stress testing by central banks.
Finally, the third chapter examines whether climate-related risks, in particular, transition risks, are priced in Korean stock market by using the compliance with the Korean emission trading scheme as a proxy for transition risks. The result shows that stocks of firms that are subject to the emission trading scheme, or relatively more exposed to transition risks, tend to have higher abnormal returns and this pattern is more pronounced after the Paris Agreement. This result thus indicates that transition risk may have significant effects on asset prices, and emphasizes the need to make efforts to understand the financial implications of climate risk and develop methodologies to assess the impact of climate risks.
보고서 1
Sustainability Reporting Based on Materiality and Price Informativeness [23-01]
Senior Research Fellow Lee, Inhyung and others / Jan. 05, 2023
That corporate sustainability information disclosure enhances enterprise value discovery is a basic premise underlying sustainability disclosure discussions. If this is not the case, sustainability reporting efforts can be of little value to both the corporate and the investors. This aspect of sustainability reporting should be taken into consideration when regulatory efforts are undertaken to mandate disclosure. This paper aims to ascertain empirically whether disclosure of material sustainability information increases the price informativeness of the firm’s stock price to provide evidence that can be considered in the regulatory design.

The IFRS S1 General Requirements for Disclosure of Sustainability emphasizes the disclosure of material information that has relevance to the enterprise value. When there are no disclosure standards specified by the IFRS S1, companies are to be guided by the SASB industry-specific disclosure standards. Since sustainability issues related to the environment and social agenda have a different level of relevance for each industry and firm, disclosure standards are uniquely provided for 77 different industries that have been identified by the SASB.

For each disclosure standard, firms are to decide which disclosure topics and related metrics are material and report them accordingly. So any sustainability information disclosed in this manner is firm-specific and the information content should be reflected in the idiosyncratic firm price movement. This hypothesis is put to test by utilizing Bloomberg’s ESG Disclosure Score database. Bloomberg provides SASB to Bloomberg Field Mapping service, which is a tool that provides a Bloomberg mapping of the material ESG metrics and data points aligned to the SASB Standards ESG disclosure topics based on SASB industry materiality.
Price informativeness is defined as the part of a price movement that is purely attributable to the firm-specific information content. This variable is explained by the material disclosure level of a firm after taking into consideration other independent variables that are deemed to affect the price informativeness through separate channels. Control variables such as firm size, business characteristics, institutional investors’ ownership, accounting information, etc., are employed and the year and firm fixed effects are also applied.

Results indicate that material information enhances price informativeness, and other control variables also show relational signs that are theoretically correct and empirically supported in the literature. Different lags and leads are employed to check the robustness of the results.

Furthermore, firms in a group that show a higher level of profit uncertainty with a lower growth prospect show significant price information content of material information than the group with a lower level of uncertainty and higher growth prospect. In a similar manner, the group of firms that engage in less conservative accounting practices also show higher price informativeness than the groups that do otherwise.