Ownership Risk and Stock Price Dynamics in East Asia: Evidence from South Korea’s 10 Largest Companies

This study analyzes the impact of ownership risk on stock prices using the event study technique. Considering the recent increase in domestic equity investment and the strong preference for large companies, we selected the top 10 companies by market capitalization as our sample. We estimated normal returns by setting an estimation interval before the occurrence of ownership risk. After the ownership risk event, we established event intervals to measure abnormal returns and compare them with normal returns. Our empirical analysis reveals that seven out of the eight sampled companies experienced significant short-term stock price losses due to ownership risk. Furthermore, when the sample was divided into the first, second, and third weeks post-event, all seven companies exhibited consecutive stock price declines in the first or second week, followed by a partial or full recovery in the third week. This pattern highlights the short-term adverse effects of ownership risk on stock prices and suggests that, while losses are immediate, market corrections tend to follow. Additionally, we observed variations in impact severity depending on the prominence of media coverage and the nature of the ownership controversy. These findings underscore the necessity of a legal framework to protect investors from ownership-related risks, either through compensation mechanisms or by implementing stricter sanctions against corporate owners involved in misconduct.