Does Stable Ownership Reduce the Idiosyncratic Risk during the Global Financial Crisis?

The purpose of this study is to analyze whether stable ownership reduces Korean firm’s idiosyncratic risk during the global financial crisis. The motivation of this paper is as follows. First, stable ownership is interesting subject to long-term investor, investor protection, and merger and acquisition for foreign investor when exogenous shock are happened like Global financial crisis. Second, it is unusual to examine the association between stable ownership and idiosyncratic risk during global financial crisis in Korea. We employ OLS regression to analyse the relation between ownership stability and idiosyncratic risk during the crisis. We use a blockholder ownership (≥5%) as a substitute variable of ownership. As a dependent variable, we use firm idiosyncratic risk that reflects investment sentiment. We measure ownership stability in the same way as Elyasiani and Jia (2010) measured. One is the number of years in which a blockholder maintains their ownership for a particular period (Non-Zero-Points Duration), and the other is the number of years in which a blockholder maintain the same percentage of ownership or increase their ownership (Maintain-Stake-Points Duration). We find that there is a negative relation between Non-Zero-Points Duration and firm idiosyncratic risk during the global financial crisis. It can be seen that stable ownership during the global financial crisis reduces investment uncertainty. Our findings contribute to our understanding regarding to the nature of the relation between ownership stability and the firm idiosyncratic risk during the global financial crisis in Korean stock markets.