The Effects of Stock Holdings and Trading by Tax Haven Investors

정호성; Soonho Kim

doi:10.23842/jif.2017.28.1.004

Journal of Insurance and Finance

2017, 28(1), pp.97-134
DOI :10.23842/jif.2017.28.1.004
Publisher : Korea Insurance Research Institute
Research Area : Business Management

정호성 ¹ , Soonho Kim ²

¹ 한국은행 경제연구원
² 부경대학교

ABSTRACT

This study examines the effect of stock holdings and trading by investors from offshore tax havens (hereafter, tax haven investors) on their target firms and the Korean stock market. This study identifies how tax haven investors’ holdings affect target firms in terms of firm value, corporate governance, dividends, R&D investment, liquidity, information efficiency, and idiosyncratic risk. Moreover, this study investigates the effect on tax haven investors’ trading on liquidity and volatility in the Korean stock market, by focusing on total trading volume, gross buy volume, gross sell volume, and net buy volume. The main findings of this study are threefold. First, target firms show a different pattern of value changes subsequent to block acquisition announcements by tax haven investors than to those by domestic or other foreign investors. Second, we find that while tax haven investors' shareholding deteriorates target firms' corporate governance, it has a positive influence on information efficiency. We do not find a significant impact on tax haven investors' ownership on dividends, R&D investments stock liquidity, or idiosyncratic risks. Third, tax haven investors’ trading exacerbates liquidity in the Korean stock market and increases stock return volatility. Based on these findings, this study suggests that regulatory authorities should continue monitoring existing policies to prevent the above-mentioned negative influences of tax haven investors in the Korean stock market.
KEYWORDS

tax heaven investors , firm value , corporate governance , liquidity , volatility
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