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The Effects of Stock Holdings and Trading by Tax Haven Investors

  • 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 : Social Science > Business Management
  • Received : January 10, 2017
  • Accepted : February 13, 2017
  • Published : February 28, 2017

정호성 1 Soonho Kim 2

1한국은행 경제연구원
2부경대학교

Accredited

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.

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This paper was written with support from the National Research Foundation of Korea.