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The equity premium puzzle: empirical evidence for the “Korea Discount”

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  • Tae Choi
  • Eunchul Lee
  • Jinhan Pae

Abstract

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.

Suggested Citation

  • Tae Choi & Eunchul Lee & Jinhan Pae, 2012. "The equity premium puzzle: empirical evidence for the “Korea Discount”," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 19(2), pages 143-166.
    • Handle: RePEc:taf:raaexx:v:19:y:2012:i:2:p:143-166
    DOI: 10.1080/16081625.2012.667378
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    1. Pantzalis, Christos & Park, Jung Chul & Sutton, Ninon, 2008. "Corruption and valuation of multinational corporations," Journal of Empirical Finance, Elsevier, vol. 15(3), pages 387-417, June.
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    Cited by:

    1. Cho, Meeok & Kim, Sehee & Kim, Yewon & Lee, Bryan Byung-Hee & Lee, Woo-Jong, 2021. "IFRS adoption and stock misvaluation: Implication to Korea discount," Research in International Business and Finance, Elsevier, vol. 58(C).
    2. Jeong Hwan Lee & Young Lee, 2024. "Taxes, Payout Policy, and Share Prices: Evidence from DID Analysis Using Korea’s 2015–2017 Dividend Tax Cut," Korean Economic Review, Korean Economic Association, vol. 40, pages 77-106.
    3. Kim, Myeong Hyeon & Kim, Young Min & Yang, Kisung, 2022. "Understanding BOXPI — Industry portfolio perspectives," Journal of Asian Economics, Elsevier, vol. 81(C).

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