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Information effect of involuntary delisting and informed trading

Author

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  • Park, Jinwoo
  • Lee, Posang
  • Park, Yun W.

Abstract

This paper analyzes the information effect of involuntary delisting and the possibility of informed trading in the Korean stock market. We find that the abnormal return is between 80% and 90% due to involuntary delisting in the Korean market, where liquidity all but disappears as a result of delisting. Prior to delisting, however, domestic individual investors are net buyers of delisted firms while both domestic institutional investors and foreign investors are net sellers. On the other hand, the share ownership of large shareholders, on average, declines by more than 30% over the course of two years prior to involuntary delisting. Using delisting probability model, we find that the change in the share ownership of large shareholders is a significant predictor of delisting while that of domestic institutional investors and foreign investors is not. Our findings suggest that large shareholders reduce their share ownership in anticipation of delisting and that there is a wealth transfer from individual investors to large shareholders surrounding involuntary delisting in markets where the separation between ownership and control is weak and the participation of retail investors is large.

Suggested Citation

  • Park, Jinwoo & Lee, Posang & Park, Yun W., 2014. "Information effect of involuntary delisting and informed trading," Pacific-Basin Finance Journal, Elsevier, vol. 30(C), pages 251-269.
  • Handle: RePEc:eee:pacfin:v:30:y:2014:i:c:p:251-269
    DOI: 10.1016/j.pacfin.2014.10.006
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    References listed on IDEAS

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    More about this item

    Keywords

    Involuntary delisting; Opportunistic behavior of large shareholders; Individual investors; Information asymmetry; Informed trading;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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