Block Sales of Foreign Investors and Firm Value : The Case of Korean Stock Market

Abstract

This research examines the announcement effect of block sales of foreign investors on firm's market value and the differences in market responses by the type of the previously announced purpose of acquisition at the time of block trades (management control vs. financial investment) and the position of resulting ownership level after the trades concerning the maintenance of the position of outside blockholders (5% or more vs. less than 5%) in Korean stock market. We find that the disclosures of block sales by foreign investors have significantly negative effects on market value of target firms. When the disclosures of block sales by investors with the initial intention of management control are sub-grouped by the position of resulting ownership level after the trades in standard of maintaining the position of blockholders, in which case, the market does not regard significantly when the resulting ownership level is higher than 5%, while the market exhibits significant and negative responses when the resulting ownership level is less than 5%. However, when the disclosures of block sales by investors with the intial purpose of financial investment only are sub-grouped by the position of resulting ownership level after the trades in reference to sustaining the position of blockholders, the market responds more negatively in which case of maintaining the position of outside blockholders than forgoing the position. On the other hand, when the disclosures of block sales by investors who abdicate the position of outside blockholders are sub-grouped by the type of the purpose of acquisition, the market responds more negatively when the acquisition is aimed to participate in management than to invest for financial purposes only.