Stock Market React to Foreign Investment: The Effects of Investment Purpose, Stock Market Characteristics, and Business Group Affiliation

This paper examines how the public announcement of foreign share acquisitions in listed companies affects the share prices of those companies. The dataset contains 422 public announcements of foreign share acquisitions in Korean listed companies over the period from March 2005 to June 2009. The empirical analysis builds upon the findings of previous studies, but also considers the moderating effects of three factors: the motivation of the foreign investor (management participation or pure investment); the characteristics of the stock exchange on which the domestic companies are listed; and the effects of group affiliation. Using event study methods, the abnormal returns are obtained and statistical tests are undertaken between the mean returns for the different sub-groups. A significant 21-day cumulative abnormal return of 1.1% is found for the total sample, and the statistical tests suggest that the factors investigated influence the size of the abnormal gains.