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An empirical study on the effect of the investment purpose change under the new 5 percent rule of Korea

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Frame of Image  the degree of MASTER OF BUSINESS ADMINISTRATION
2007 Professor Woojin Kim
AN EMPIRICAL STUDY ON THE EFFECT OF THE INVESTMENT PURPOSE CHANGE UNDER THE NEW 5 % RULE OF KOREA By Kap-Sok Kwon
THESIS Submitted to KDI School of Public Policy and Management in partial fulfillment of the requirements for the degree of MASTER OF BUSINESS ADMINISTRATION
Approval as of July 20, 2007 Supervisor Woojin Kim
2007
ABSTRACT
AN EMPIRICAL STUDY ON THE EFFECT OF THE INVESTMENT PURPOSE CHANGE UNDER THE NEW 5 % RULE OF KOREA By Kap-Sok Kwon
This paper examines the relationship between the investment purpose of toehold investor and the target firm’s value using a hand-collected sample of 101 changes in investment purpose from Korea during 2005. I find evidence that a toehold investor creates value by changes in the declared intention of investment from passive to active participation. Specifically, the announcement is followed by statistically significant abnormal returns of 1.97% and 2.82% during the 3 day window and 11 day window surrounding the announcement date respectively. The highest abnormal returns occur when toehold investors are foreign and declared investment purpose is comprehensive. The results suggest that even simple change in investment purpose, not accompanied by additional share acquisition, can affect firm value by influencing the likelihood and magnitude of value enhancing events.
TABLE OF CONTENTS I. Introduction 1
II.
Literature Review and Hypothesis Building
4
III.
Overview


Full Text
Title An empirical study on the effect of the investment purpose change under the new 5 percent rule of Korea
Similar Titles
Material Type Reports
Author(English)

Kwon, Kap-Sok

Publisher

[Seoul]:KDI School of Public Policy of Management

Date 2007
Pages 42
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Direct Investment
Industry and Technology < Entrepreneurship
Holding KDI School of Public Policy of Management

Abstract

This paper examines the relationship between the investment purpose of toehold
investor and the target firm’s value using a hand-collected sample of 101 changes in
investment purpose from Korea during 2005. I find evidence that a toehold investor creates value by changes in the declared intention of investment from passive to active participation. Specifically, the announcement is followed by statistically significant abnormal returns of 1.97% and 2.82% during the 3 day window and 11 day
window surrounding the announcement date respectively. The highest abnormal returns occur when toehold investors are foreign and declared investment purpose is
comprehensive. The results suggest that even simple change in investment purpose,
not accompanied by additional share acquisition, can affect firm value by influencing the likelihood and magnitude of value enhancing events.