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korean management review - Vol. 50, No. 4

[ Article ]
korean management review - Vol. 50, No. 4, pp.959-980
Abbreviation: kmr
ISSN: 1226-1874 (Print)
Print publication date 31 Aug 2021
Received 15 Jan 2021 Revised 01 Mar 2021 Accepted 06 Apr 2021

The Effect of Equity Valuation on External Financing
Hyunseok Kim
(First Author) BK21 FOUR Research Professor, Yonsei Business School (

주식 가치평가요인이 외부자금조달에 미치는 영향

This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0, which permits unrestricted, distribution, and reproduction in any medium, provided the original work is properly cited.
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This paper investigates the effect of equity valuation on external financing of firms listed on Korea stock exchange over the period 2000-2016. To do so, I use the methodology of Rhodes–Kropf et al. (2005), which breaks down the market to book ratio (M/B) into three components; long-run value to book (LVTB), firm specific error (FSE) and time-series sector error (TSE). I find that both long-run growth opportunities (LVTB) and two misvaluation factors (FSE and TSE) have a significantly positive effect on stock issuance, but not on debt issuance, implying that managers make decisions to implement a seasoned equity offering (SEO) when the firm has a long-term growth opportunity, or when the equity or the industry is overvalued. Managers often issue stocks for long-term growth opportunities to meet their investment needs (or to repay their debt obligations), while strategically issue stocks at the time their company or their industry is hot.

Keywords: Equity Valuation, Growth Opportunity, External Financing


This paper is written by revising and supplementing part of the first chapter of the author Hyunseok Kim’s Ph.D. dissertation.

This work was supported by the ‘BK21 FOUR (Fostering Outstanding Universities for Research)’ in 2021.

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∙ The author Hyunseok Kim is a BK21 FOUR research professor in the Department of Business School at Yonsei University when the manuscript was accepted for publication. He earned his Ph.D. in Finance from Sungkyunkwan University. His research interests include capital structure, payout policy, event study, valuation, stock return, liquidity.