Stock Price Reactions to M&A Market Events in Korea

This paper conducts event-studies on two of the most important events in recent history of Korean M&A market, to examine which firms were regarded more vulnerable to hostile takeover. First is the event on December 14th, 1993, in which the Congress unexpectedly delayed for two years the repeal of the law prohibiting hostile takeover. Second is the event on March 11, 1997 in which leading Korean companies announced that they would act together to block the on-going attempt to takeover Midopa Department Store. Both these events abruptly ended the expectation that hostile takeovers will rise in Korea and lead to sharp price drops of the stocks of the firms deemed to be the primary targets of the first M&A wave in Korea. This paper shows that the first event affected the firms that were small and financially weak, while the second event affected the firms that held controlling shares of many subsidiary firms but are not big Chaebols.