Biography
Dr. Ke Na is Assistant Professor of Accounting at the University of Hong Kong. Dr. Na graduated from University of Missouri, Columbia and received his PhD Degree in Accounting from Simon Business School, University of Rochester, USA in 2014. He currently teaches Introduction to Financial Accounting and Boot Camp of Economics for Master of Accounting.
This interview with Dean Xiang Bing was originally conducted and published by Chosun Biz in Korean and has been translated into English.
“In the 300 years since the Enlightenment, the global economy, politics, and culture have all been proposed and led by the Western countries. This trend should be changed through economic alliances between Asian countries, including China and South Korea.”
Cheung Kong Graduate School of Business, established in Beijing, is considered one of the top 4 business schools along with Peking University, Tsinghua University, and China Europe International Business School. Jack Ma, Founder of Alibaba, Liu Chuanzhi, Chairman of Lenovo, Guo Guangchang, CEO of Fosun, and Chen Yidan, co-founder of Tencent are some of the notable alumni of CKGSB. The proportion of alumni of CKGSB in top positions at China’s leading 100 companies is about 20%, making up the ‘Who’s Who of Business in China.’
Q. What is the most remarkable achievement of the two countries during the 30 years of diplomatic relations between Korea and China?
At the time of the establishment of diplomatic relations between Korea and China in 1992, the volume of trade of goods between the two countries was only USD $5.05 billion (about KRW 6.61 trillion).
However, as of 2021, it surged to USD $362.4 billion dollars (about KRW 474.74 trillion).
For South Korea, China has maintained its position as the largest trading partner for as long as 18 years, from 2004 to 2021.
According to data from the U.N Conference on Trade and Development, Korea’s exports to China in 1995 (early in the diplomatic relations between Korea and China) were only 7.31%, but increased to 25.28% in 2021.
The proportion of Chinese imports from Korea, which accounted for only 5.48 percent of total imports in 1995, also increased to 22.53 percent in 2021.
These exchanges are accelerating further due to the Korea-China FTA (Free Trade Agreement) that took effect in 2015.
The growth of the China-Korea relations goes beyond economics. As of April 1, 2021, there were 67,438 Chinese students studying in Korea, accounting for 44.2% of all foreign students (Korea Educational Development Institute). On the other hand, in China, 13 cities, including Hong Kong, have established Korean schools ranging from kindergartens to high school curriculums, with more than 5,400 students and more than 600 teachers working there. The two countries have developed a win-win relationship, covering various fields such as business, education, and culture.
Q. How will the two countries benefit from the Regional Comprehensive Economic Partnership (RCEP), which took effect on January 1 this year?
As of the end of 2021, the population of RCEP member countries comprises of 29.7% (2.29 billion) of the world’s total population and accounts for 30.57% of the world’s GDP ($29.43 trillion).
In particular, RCEP is the first free trade agreement involving all three countries: Korea, China, and Japan. According to data from the International Monetary Fund (IMF), the combined size of the three economies amounts to 25.1 percent of the global economy. RCEP will pave the way for the three countries to develop closer ties in the future. It will increase economic gains by increasing production and trade in these countries, especially in the high-tech manufacturing sector.
Q. Which industrial sector is particularly competitive for Korea in the Chinese market?
Korea has a competitive edge in semiconductors, electronics, and telecommunications. According to the Korea International Trade Association’s top 10 export items to China in 2021, electronic devices accounted for 41.7%, ranking first, and nuclear reactors, boilers, and mechanical equipment ranked second with 10.75%.
By industry, semiconductors, electric vehicles, and secondary batteries steadily dominate the export market. Korea’s new business sector is likely to remain competitive in the Chinese market in the future. This is because they quickly jumped to the early stages of global market growth and secured first-mover status and achieved quantitative growth in the global market.
Q. The Chinese government forecast economic growth of 5.5% this year. However, countries other than China expect China’s growth rate to be below expectations. What do you expect?
The key depends on the deregulation of the Chinese government. Recently, the Chinese government significantly eased regulations on oil, gas, and financial services. In the future, regulations on power generation, aviation, railways, and media may be eased. China’s unique economic system, driven by the government, is very different from that of the Western world. Therefore, it is very difficult to predict China’s economy by the standards of Western countries.
In addition, the impact of technological disruptions on the market cannot be ignored. Explosive growth may occur in areas such as the Internet of Things (IoT), big data, cloud computing, and Blockchain.
Therefore, an accurate prediction is difficult to make. However, given China’s unique economic system, this target is not impossible.
Q. You invented a unique concept called the Confucian Economic Sphere. Could you tell us about it?
In 2017, I coined CES, which stands for the Confucian Economic Sphere, combining four regions of China (including Hong Kong, Macau, Taiwan and mainland China) and eight economic regions, including Japan, Korea, Singapore, and Vietnam. As of 2021, CES’ GDP was USD $26.145 trillion (about KRW 3.4220 trillion), accounting for 27.15% of the world’s GDP. As of 2021, the number of CES companies among the “Fortune Global 500 Companies” stood at 215, accounting for 42%. In addition, the impact of CES is huge as the IMF expects it to drive global economic growth in the future.
“Korea and China are the main pillars of CES, both countries shall lead the world economy in the future.”
Q. What strengths does CES have over other economies?
In Samuel Huntington’s book, Clash of Civilization, he predicted that future wars would be fought over cultures. However, CES, which share the ideology of Confucianism and has relatively minor cultural differences.
I often visit Korea or Japan on business trips, and I have rarely felt a great cultural gap. But similarity this is not the only advantage. Even within CES, political and economic models between countries are different. They can learn from each other’s models.
Q. What should Korea and China do to continue a positive relationship in the future?
There is so much room for cooperation between the two countries. The markets of both countries can be further opened through RCEP, and new opportunities can be further expanded with the Comprehensive and Progressive Trans-Pacific Economic Partnership (CPTPP) and the China, Korea and Japan FTA. The relation between these three countries, China, Korea and Japan, should be reborn as future-oriented and go beyond historical conflicts of the past. We cannot dwell on the past and neglect our present interests. In fact, all EU member states were in territorial and religious disputes in the past. These three countries, which are the main pillars of CES, should create a more future-oriented relationship.
Until now, we have jumped on and followed the world order and values that the West has created. But now, CES should be at the center and contribute to the world by creating Asian values.
Q. How can CKGSB contribute to this goal?
As I emphasized, we should move beyond history and towards the future. At CKGSB, we’ve been nurturing a global mindset and global values from the start among our students.
I hope that the alumni of CKGSB will be able to contribute to the development of both countries within the framework of CES.
Biography
Dr. Liandong Zhang is Professor of Accounting at School of Accountancy at the Singapore Management University. He joined Singapore Management University in 2017 as the Associate Dean (Research) at School of Accountancy. Dr. Zhang graduated from Tsinghua University, Beijing and received his PhD Degree in Accounting from Nanyang Technological University in 2008. He has previously taught at the Concordia University in Canada and City University of Hong Kong. His current research interests include financial reporting quality, corporate governance, and taxation. He currently teaches Accounting Theory.
Biography
Dr Huai Zhang received his Ph.D in Accounting from Columbia University in 2000. He taught at University of Illinois at Chicago and was promoted to Associate Professor with tenure at University of Hong Kong before joining Nanyang Business School in 2006. He has published in major accounting and finance journals, including Journal of Accounting and Economics, Journal of Finance and Review of Accounting Studies. He received the Best Paper Award at the 2004 International Finance Conference and the 2016 Midwest Finance Association Meeting. He was also the recipient of Nanyang Business School Research Excellence Award in 2011 and 2013. He sits on the editorial board of Review of Accounting and Finance and The International Journal of Accounting, both refereed academic journals, and is an ad hoc reviewer for journals such as Journal of Accounting Research, The Accounting Review, Contemporary Accounting Research and Review of Accounting Studies. He is the keynote speaker at the 5th Annual International Conference on Accounting and Finance, the 1st Boya Management Accounting Research Forum, and the 14th International Symposium on Accounting Research in China. In recognition of his contributions to China-related studies and his efforts in nurturing local researchers, the Fujian Province Government in China conferred him the title of “Ming Jiang Scholar” (闽江学者) in 2015.
Biography
Dr. Sterling Huang joined Singapore Management University in 2014. He received his Master of Science and Ph.D. in Management from INSEAD Business School. Prior to his doctoral studies, he was an auditor with PricewaterhouseCoopers (Sydney) and a lecturer at Macquarie University Australia. He has published in the Journal of Accounting Research, The Accounting Review, Review of Financial Studies, Strategic Management Journal, European Accounting Review and Journal of Accounting, Auditing, and Finance. His work has been cited multiple times in major media outlets and practitioner forums, such as Wall Street Journal, Thomson Reuters, Bloomberg, INSEAD Knowledge, Harvard Business Review, Booz & Co Strategy & Business Magazine, Chief Executive Magazine, American Banker Online, Finance & Development (IMF), the Harvard Law School Forum on Corporate Governance and the Columbia Law School’s Blog on Corporations and the Capital Markets. He is a Chartered Financial Analyst Charterholder and a member of Institute of Chartered Accountant Australia.
Abstract
The Securities and Exchange Commission’s 2006 Executive Compensation Disclosure Rules require firms to disclose how executive pay is determined by benchmarking total compensation at the competitive labor market level (compensation benchmarking) and by benchmarking performance targets in relative performance evaluation (performance benchmarking). Prior studies examining the selection of peer firms typically focus on one or the other benchmark. Using Incentive Lab’s detailed data on proxy statements from 2006 through 2015, we find that approximately 57% of the peers are used simultaneously for both compensation and performance benchmarking, a pattern largely ignored in prior literature. We label these peers as “dual-role peers” and show that firms can indeed succeed in selecting such peers in order to achieve high pay and yet low expected performance. Moreover, we find that the extent of such discretionary peer selection is positively associated with realized excess CEO pay, and negatively associated with ex-post stock performance in the subsequent year. Additional evidence shows that the power of CEOs to intervene the boards’ compensation decisions exacerbates the opportunistic peer selection. Our study provides new evidence on managerial self-serving behavior in compensation practices and highlights the importance of considering dual-role peers in compensation research.
Wei Jiang, Bin Ke, Hong Ru, and Yue Xu
Abstract
The objective of this study is to analyze the compensation practices of non-CEO top executives as a group measured by horizontal pay dispersion. We address two specific questions. First, we examine whether government ownership affects non-CEO executives’ horizontal pay dispersion. Second, we examine how such ownership-induced horizontal pay dispersion affects firm performance. We find that non-CEO top executives’ horizontal pay dispersion is lower in government-controlled firms (SOEs) than in privately-controlled firms (non-SOEs). We show that the difference in horizontal pay dispersion between SOEs and non-SOEs is consistent with the institutional differences between the two ownership types. There is evidence that such ownership-induced horizontal pay dispersion is associated with lower firm performance, suggesting that SOEs’ horizontal pay dispersion is suboptimal from the perspective of shareholder value maximization.
Abstract
Motivated by competing theories on the properties of earnings required for compensation performance measurement, we provide direct evidence on the properties of actual accounting earnings that are used in determining compensation payouts (Compensation Earnings). Using a large sample of manually collected Compensation Earnings for U.S. firms, we show that firms make economically significant adjustments to GAAP Earnings in arriving at Compensation Earnings. While GAAP Earnings exhibit conservatism, we fail to detect conservatism (either by statistical significance or by magnitude of coefficient) in Compensation Earnings using the same sample and the same research design. The absence of conservatism in Compensation Earnings is also documented in various subsamples partitioned on market-to-book ratio, leverage, firm size, and corporate governance. Further analyses indicate that the adjustment from GAAP Earnings to Compensation Earnings involves the removal of less persistent components of GAAP Earnings, resulting in Compensation Earnings that are more persistent than GAAP Earnings.
Abstract
In response to the temporary tax holiday introduced by the American Jobs Creation Act, U.S. multinational corporations repatriated approximately $300 billion from their foreign subsidiaries to the United States. We find that repatriating firms invest at least a portion of the repatriated funds in corporate social responsibility (CSR) initiatives, as evidenced by increasing CSR performance of the repatriating firms relative to non-repatriating firms during the years after the repatriation. The effect of repatriation on CSR performance is more pronounced for financially unconstrained firms, poorly governed firms, and firms located in states with stronger stakeholder preferences for CSR.
Abstract
Security regulations are enforced by SEC staff members. Conceptually, the regulations are to be uniformly enforced despite personal differences among SEC enforcers. We offer evidence to the contrary. Using the SEC’s comment letters as our setting, we find that SEC staff members exhibit unique personal “styles.” The effects of their personal styles on firms’ remediation costs, the contents of SEC comment letters, and the quality of firms’ financial reporting are surprisingly large. We manually collect information on SEC staff members. Our results demonstrate that female staff members are generally tougher reviewers and that CPA qualification matters. Overall, our study offers evidence that SEC staff members exhibit individual differences, and their styles shape firms’ financial reporting.
Robert Bushman, Zhonglan Dai and Weining Zhang
Abstract
The objective of this paper is to investigate (1) the role of adjustment costs in sustaining divergence between actual and optimal CEO equity incentives; (2) the nature of the dynamic process governing adjustment of non-optimal incentives back towards optimal; and (3) the extent to which deviations from optimal incentives exacerbate financial misreporting. Consistent with adjustment costs driving a wedge between realized and optimal incentives, we document that firm value decreases in deviations from optimal, and that firms only partially close the current gap between target and actual CEO incentives over the subsequent year. Further, speed of adjustment towards optimality varies with differences in monitoring intensity, product market competition and CEO tenure. Examining consequences of out-of-equilibrium incentives, we find that financial misreporting is increasing in the deviation from optimal, where the sensitivity of misreporting to deviation is stronger when CEO incentives are excessive relative to when they are below optimal levels. Finally, the sensitivity of misreporting to deviation is lower for firms with higher monitoring intensity, and magnified for firms with more intense product market competition and early term CEOs.
Christopher S. Armstrong, Stephen Glaeser and Sterling Huang
Abstract
We examine how the ability to control firm exposure to risk affects the design of executive compensation contracts. To do so, we use the introduction of exchanged-traded weather derivatives, which significantly increased executives’ ability to control their firms’ exposure to weather risk, as a natural experiment. We find that executives for whom weather derivatives have the greatest impact on the ability to control firm exposure to weather risk experience relative declines in total compensation and equity incentives. The former finding is consistent with a reduction in the risk premium that executives receive for their firms’ exposure to weather risk. The latter finding suggests that risk and incentives are complements when executives can control their firms’ exposure to risk. Collectively, our results show that the executives’ ability to control their firms’ exposure to risk alters the nature of agency conflicts and influences the design of incentive-compensation contracts.
