The Effects of Stock Holdings and Trading by Tax Haven Investors (in Korean)

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 of tax haven investors' trading on liquidity and volatility in the 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 firm values subsequent to the announcement of tax haven investors' block acquisition show a different pattern of change compared to those subsequent to the announcement of domestic investors' or other foreign investors' block ownership. However, the difference is not statistically significant. Second, tax haven investors' shareholding is not found to have a significant impact on target firms' corporate governance, dividends, R&D investments, stock liquidity, or idiosyncratic risk. Third, tax haven investors' trading exacerbates liquidity in the stock market and increases stock return volatility. Based on such findings, this study suggests that regulatory authorities continue monitoring whether their existing policies prevent the above-mentioned negative influences of tax haven investors in the Korean stock market.