Disclosure Effects of Korean Firms’ Divestment from China

Abstract

Purpose – We examine the disclosures on foreign divestment from China by 77 Korean firms between 2007 and 2016 to identify the effects (and their determinants) on parent firm value.

Design/methodology – We analyze how divestment affects firm value by examining the disclosure of divestment from China by Korean firms. Then, we examine the determinants of these disclosure effects using cross-sectional regression analyses.

Findings – We find negative effects on parent firm value in the short and medium term, and both the KOSPI and KOSDAQ stock markets show negative correlations between foreign divestment and firm value. The parent firm’s financial condition and profitability and the reason for divesting are statistically significant determinants.

Practical implications – Most Korean firms in China belong to the manufacturing industry. As a result, divestment signifies a loss of important manufacturing bases and assets.

Originality/value – We analyze foreign direct divestment, which has not been studied in detail previously owing to a lack of data. In addition, this research is the first to compare the disclosure effects in the KOSPI market with those in the KOSDAQ market for the same period.

Keywords: China, Disclosure Effect, FDD, FDI, Firm Value, Korean Firm

JEL Classification: D12, F14, O53