Journal of Korea Trade

Korea Trade Research Association (한국무역학회)
권호 표지
DOI QR코드

DOI QR Code

Disclosure Effects of Korean Firms' Divestment from China

  • Received : 2019.04.25
  • Accepted : 2019.08.14
  • Published : 2019.08.31
Download PDF
⟨ Previous Next ⟩

Abstract

Purpose - We examine the disclosures on foreign divestment from China by 77 Korean firms between 2007 and 2016 to identify the effects (and their determinants) on parent firm value. Design/methodology - We analyze how divestment affects firm value by examining the disclosure of divestment from China by Korean firms. Then, we examine the determinants of these disclosure effects using cross-sectional regression analyses. Findings - We find negative effects on parent firm value in the short and medium term, and both the KOSPI and KOSDAQ stock markets show negative correlations between foreign divestment and firm value. The parent firm's financial condition and profitability and the reason for divesting are statistically significant determinants. Practical implications - Most Korean firms in China belong to the manufacturing industry. As a result, divestment signifies a loss of important manufacturing bases and assets. Originality/value - We analyze foreign direct divestment, which has not been studied in detail previously owing to a lack of data. In addition, this research is the first to compare the disclosure effects in the KOSPI market with those in the KOSDAQ market for the same period.

Keywords

References

  1. Borde, S. F., J. Madura and A. Akhigbe (1998), "Valuation Effects of Foreign Divestitures", Managerial and Decision Economics, 19(2), 71-79. https://doi.org/10.1002/(SICI)1099-1468(199803)19:2<71::AID-MDE866>3.0.CO;2-#
  2. Bowman, R. G. (1983), "Understanding and Conducting Event Studies", Journal of Business Finance & Accounting, 10(4), 561-584. https://doi.org/10.1111/j.1468-5957.1983.tb00453.x
  3. Brown, S. J. and J. B. Warner (1980), "Measuring Security Price Performance", Journal of Financial Economics, 8(3), 205-258. https://doi.org/10.1016/0304-405X(80)90002-1
  4. Brown, S. J. and J. B. Warner (1985), "Using Daily Stock Returns: The Case of Event Studies", Journal of Financial Economics, 14(1), 3-31. https://doi.org/10.1016/0304-405X(85)90042-X
  5. Chae, Hyung-Sik (2008), A Study of Korean Companies on Furtive Withdrawal from China (Master's Thesis), Daegu, Korea: Keimyung University.
  6. Choi, Myung-Hyun, Woo-Jin Lee and Min-Soo Kim (2000), "The Comparison Between KSE and KOSDAQ", Journal of Korean Security Academy, 2000(2), 275-295.
  7. Coakley, J., T. Hardy and Han-Min Wang (2008), "The Short-Run Wealth Effects of Foreign Divestitures by UK Firms", Applied Financial Economics, 18(3), 173-184. https://doi.org/10.1080/09603100601018831
  8. Cooney, M. R., F. Finn and A. Karl (2004), "Australian Divestiture Activity: An Examination of Gains to Sell-off Announcements", Australian Journal of Management, 29(1_suppl), 135-152. https://doi.org/10.1177/031289620402901S06
  9. Chung, Chune-Young, Jong-Hyeon Lee and Jin-Woo Park (2014), "Are Individual Investors Uninformed? Evidence from Trading Behaviors by Heterogeneous Investors Around Unfaithful Corporate Disclosure", Asia-Pacific Journal of Financial Studies, 43(2), 157-182. https://doi.org/10.1111/ajfs.12043
  10. Chung, Chune-Young, Joo-Hwan Kim and Jin-Woo Park (2017), "Individual Investor Sentiment and IPO Stock Returns: Evidence from the Korean Stock Market", Asia-Pacific Journal of Financial Studies, 46(6), 876-902. https://doi.org/10.1111/ajfs.12199
  11. Fama, E. F., L. Fisher, M. C. Jensen and R. Roll (1969), "The Adjustment of Stock Prices to New Information", International Economic Review, 10(1), 1-21. https://doi.org/10.2307/2525569
  12. Hwang, Jae-Han (2006), "Change of Policies for Foreign Direct Investment in China and Its Countermeasure", Journal of North Asian Economic Studies, 18(3), 1-26.
  13. Im, Hye-Joon (2007), "Implications of Korean Foreign Direct Investment in China on Its Trade Balance: Evidence from Korean Subsidiaries Survey Data", Journal of Korea Trade, 11(1), 1-19.
  14. Ittner, C. D. and D. Oyon (1993), "The Market Response to South African Disinvestment", International Journal of Management, 10(2), 12-34.
  15. Jon, Kyong-Tae (2002), "The Issue & Countermeasure of FDI in China in the Case of Korean Firms", Journal of Social Sciences, 21(2), 131-156.
  16. Kim, Ki-Hyun (1995), "The Effect of Voluntary Foreign Selloffs on Shareholder Wealth", International Management Studies, 6(1), 131-149.
  17. Kim, Ki-Hyun (2006), "Change of Investment Environment in China and its Countermeasure", Korean-Chinese Social Science Studies, 7, 2-25.
  18. Kim, Kyung-Soon, Jin-Woo Park, Chune-Young Chung and Jin-Hwon Lee (2012), "Is Stock Split a Manipulation Tool? Evidence from the Korean Stock Market", Asia-Pacific Journal of Financial Studies, 41(5), 637-663. https://doi.org/10.1111/j.2041-6156.2012.01086.x
  19. Kim, Soo-Jung and Young-Gon Cho (2010), "Valuation Effects of Foreign Divestment by KOSDAQ-Listed Firms", Journal of Korea Trade, 35(3), 115-140.
  20. Kim, Yong-Soo (2009), The Valuation Effects of Foreign Divestment by Korean Firms (Master's Thesis), Seoul: Sookmyung University.
  21. Lee, Doo-Won and Hyeon-Seung Huh (2009), "Economic Impact of Korea's Outward FDIs into Developed and Developing Economies Across Industries", Journal of Korea Trade, 13(2), 75-88.
  22. Lee, Hyun-Hoon and R. S. Rajan (2011), "Foreign Direct Investment in the APEC Region: The Role of Country Risks", Journal of Korea Trade, 15(3), 89-123.
  23. Lee, Myung-Yong (2008), "The Change of China's Legal Environment and its Countermeasure", Hyundai Research Institute.
  24. Lee, Soo-Dong (2009), "The Background and Implication of Korean Firm's Abnormal Divestment in China", Gyeonggi Research Institute Policy Brief, 1-19.
  25. Lee, Yoon-Ji (2012), The Analysis of Success and Failure about Korean Enterprise's Direct Investment to China (Master's Thesis), Seoul: Kyunghee University.
  26. Liu, Chang, Chune-Young Chung, Hong-Kee Sul and Kai-Nan Wang (2018), "Does Hometown Advantage Matter? The Case of Institutional Blockholder Monitoring on Earnings Management in Korea", Journal of International Business Studies, 49(2), 196-221. https://doi.org/10.1057/s41267-017-0093-9
  27. Mathur, I., K. C. Gleason and M. Singh (2006), "Did Markets React Efficiently to the 1994 Mexican Peso Crisis? Evidence from Mexican ADRS", Journal of Multinational Financial Management, 8(1), 39-48. https://doi.org/10.1016/S1042-444X(98)00016-4
  28. Mishikin, F. F. and A. D. Maison (2004), Does Inflation Matter? (NBER Working Paper, No. 10545), Cambridge, MA: National Bureau of Economic Research, 18-28.
  29. Nai, R. (2015), A Study on Foreign Direct Divestment by Korean Firms from China (Master's Thesis), Seoul: Kyunghee University.
  30. Kim, Eun-Young (2011), A Study on Utilization of Export Assistance Programs for SMEs and Their Exportation Performance (Master's Thesis or Doctoral Dissertation), Daejeon, Korea: Hannam University.
  31. Petersen, M. A. (2009), "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches", The Review of Financial Studies, 22(1), 435-480. https://doi.org/10.1093/rfs/hhn053
  32. Qin, Jin-Ha (2008), A Study on the Issues of Withdrawing Investment from China by Korean Enterprise (Master's Thesis), Busan, Korea: Dong-A University.
  33. Seo, Min-Kyo (2008), "Do Korean Firms' Foreign Divestments Increase Shareholder Wealth?", International Business Review, 12(1), 29-48. https://doi.org/10.21739/IBR.2008.03.12.1.29
  34. Seo, Min-Kyo and Hyun-Chul Lee (2005), "The Wealth Effect on Stock Holder in the Foreign Divestment of Korean Firms", International Business Review, 9(1), 151-172. https://doi.org/10.21739/IBR.2005.06.9.1.151
  35. Seon, Jung-Hoon and Ji-Soo Lee (2015), "A Comparison of Price Efficiency Between Korean New Market and Main Board", Korean Journal of Futures and Options, 23(3), 421-437.
  36. Shao, Q. (2011), A Study on the Abnormal Divestment of Korean Manufacturing Firms in China: Focus on Qingdao Area (Master's Thesis), Seoul: Sookmyung Women University.
  37. Sul, Won-Silk and Young-Joo Kim (2009), "The Valuation Effects of Foreign Divestment by Korean Firms", Korean Journal of Business Administration, 22(4), 2139-2159.
  38. Wang, Jing-Hao (2016), A Study on the Advance of Korean Small-Sized Enterprises into Chinese Market (Master's Thesis), Daejeon, Korea: Hannam University.
  39. Yi, Ka-Youn, Kyung-In Park and Ting-Ting Yu (2013), "Market Reaction to Announcement of Foreign Divestment by Korean Firms in China", Korean Journal of Business Administration, 26(3), 549-566.
  40. Yoo, Seung-Ho and Chang-Yong Lee (1999), "Market Response to Divestment of Korean Firms", Korean Journal of Financial Studies, 5(1), 49-74.
  41. Zhao, L. J. (2015), A Study on Korean U-Turn Policy Implications for China-based Korean Firms (Master's Thesis), Jeonju, Korea: Jeonju University.