This paper studies foreign blockholder activism in an emerging market. Using Korean data from 1998 to 2006, we obtain a number of findings that suggest foreign blockholder’s role as an exporter of good corporate governance. First, event study results show that target’s price reaction is positive at the time of foreign block acquisition and negative at the time of its divestment. Second, this valuation effect increases with the level of block ownership and the size of aggregate foreign ownership prior to block holding announcement relative to the size of controlling shareholder’s voting right. Third, the valuation effect increases with the frequency of hostile takeover or the size of M&A volume in foreign blockholder’s home country. The valuation effect, however, does not vary with home country’s internal governance mechanism, such as control-ownership disparity or board independence. Lastly, the responsiveness of firm-level cash flow with respect to industry-level cash flow increases with the size of foreign ownership and particularly so with the size of ownership by investors from countries with frequent hostile takeovers.
JEL Classifications: G34
Keywords: Foreign blockholders; Active monitoring; Home country characteristics; Corporate governance convergence; Tunneling; Korea
학회소식
학회소식