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1 DEPARTMENT OF MANAGEMENT RESEARCH PAPERS STOCK MARKET REACT TO FOREIGN INVESTMENT: THE EFFECTS OF INVESTMENT PURPOSE, STOCK MARKET CHARACTERISTICS, AND BUSINESS GROUP AFFILIATION Byoung Youp Lee, Jenifer Piesse and Roger Strange Research Paper XX Subject area: International Business To request a paper please contact: Corresponding Author: Jenifer Piesse Department of Management King s College London Franklin-Wilkins Building 150 Stamford St London SE1 9NH United Kingdom Tel/Fax: 44 (0) jenifer.piesse@kcl.ac.uk

2 STOCK MARKET REACT TO FOREIGN INVESTMENT: THE EFFECTS OF INVESTMENT PURPOSE, STOCK MARKET CHARACTERISTICS, AND BUSINESS GROUP AFFILIATION Byoung Youp Lee King s College London Department of Management 150 Stamford St, London SE1 9NH byoung.lee@kcl.ac.uk Jenifer Piesse King s College London Department of Management 150 Stamford St, London SE1 9NH Tel: 44 (0) jenifer.piesse@kcl.ac.uk and University of Stellenbosch, South Africa Roger Strange School of Business, Management and Economics University of Sussex Mantell Building, Brighton BN1 9RH Tel: 44 (0) R.N.Strange@sussex.ac.uk Abstract This paper examines how the public announcement of foreign share acquisitions in listed companies affects the share prices of those companies. The dataset contains 422 public announcements of foreign share acquisitions in Korean listed companies over the period from March 2005 to June The empirical analysis builds upon the findings of previous studies, but also considers the moderating effects of three factors: the motivation of the foreign investor (management participation or pure investment); the characteristics of the stock exchange on which the domestic companies are listed; and the effects of group affiliation. Using event study methods, the abnormal returns are obtained and statistical tests are undertaken between the mean returns for the different sub-groups. A significant 21-day cumulative abnormal return of 1.1% is found for the total sample, and the statistical tests suggest that the factors investigated influence the size of the abnormal gains. JEL classification: G14, G32, G34 Keywords: Corporate governance; foreign investment; blockholders; business groups; event study; emerging markets 2

3 Stock Market React to Foreign Investment: The Effects of Investment Purpose, Stock Market Characteristics, and Business Group Affiliation 1. Introduction There is a substantial literature investigating how the public announcement of foreign share acquisitions in listed companies affects the share prices of those companies. These empirical studies yield mixed results, with some reporting significant positive impacts whilst others find an inconclusive response. This suggests that the local markets take into account other factors apart from the simple fact of a foreign share acquisition. In this paper, we consider the possible effects of investment purpose, stock market characteristics, and business group affiliation on the stock market response to foreign share acquisitions. We consider 422 public announcements of foreign share acquisitions in Korean listed companies over the period from March 2005 to June The Korean context is particularly appropriate for this study for a number of reasons. First, Korea is a large economy, has witnessed substantial inflows of foreign investment since the millennium, and was perhaps the first country in South East Asia to recover from the 1998 financial crisis. Second, the Korean Government amended its regulations regarding the disclosure of block acquisitions in 2005 and, since March 2005, has required all investors making a block (5% or more of the total shares) acquisition to reveal the purpose of their investments. We have thus been able to distinguish in our dataset between acquisitions that were made with the express intention of the foreign investor participating in the management of the domestic Korean company, and acquisitions that were made for (portfolio) investment purposes only. In the former case, we would expect a significant positive share price response to the announcement but in the latter an an insignificant response. Third, some of the domestic companies are listed on the long-established Korean Stock Exchange (KSE), whilst others are listed on the newer Korean Securities Dealers Automated Quotation (KOSDAQ) exchange. We would expect there to be a much stronger stock market response to acquisitions of shares in KOSDAQ listed companies than in those listed on the KSE. Fourth, some of the domestic companies were members of chaebol, whilst others were not. We would 3

4 expect business group affiliation to have a dampening impact on any stock market reaction, as participants would expect new investors to exercise little influence over affiliated companies. The paper is structured as follows. We first review the extant literature on stock market responses to announcements of foreign share acquisitions, and put forward three testable hypotheses. We then explain the construction of our dataset, provide some descriptive statistics for the sample, and explain the main elements of the event study methodology used in this paper. The empirical results are then presented and discussed, and we conclude by considering briefly possible avenues for the extension of the analysis in this paper. 2. Literature Review and Hypotheses There is a considerable literature that examines the effects of the public announcements of foreign share acquisitions in listed companies on the share prices of those companies. The strategic importance of foreign investment, particularly in emerging markets, has led to a reevaluation of the financial strength of firms when an announcement of international expansion becomes available to the stock market. This literature includes an enquiry into the motivation for foreign ownership that is broadly consistent with investors internalisation needs (Morck & Yeung, 1992); an analysis of the potential risk-sharing strategies to ally with multinational partners in foreign investment (García-Canal & Sánchez, 2006), and a study of the investment decisions to improve the long-run competitiveness of firms (Woolridge & Snow, 1990). The appropriate timing of investments to gain future benefits from FDI was found to provide a positive stock market response by Ding & Sun (1997) and Meschi & Cheng (2002). Cheng & Fung (1998) examined the stock market response to joint venture announcements between US and Chinese companies using US stock market data. The results of this study (using 103 firms during the period ) showed a significant 3-day abnormal return around the event date. Although these results are based on the positive effect from the US FDI firms, stock market reactions are confined to a few days only around the announcement. Further regression analysis did not provide any evidence that firm-specific factors contributed to the size of the abnormal gains. López-Duarte & García-Canal (2007) investigated the stock market response to FDI announcements made by Spanish companies between 1990 and Different categories of ownership and the extent of investors involvement were found to explain 4

5 the positive announcement response. The more engaged investments showed higher abnormal returns when the announcements were made available to the market. Finally, in a study of the Singapore stock market, Ding & Sun (1997) investigated whether FDI announcements provided new information to investors, whether shareholder benefits were a product of their firms FDI decisions, and whether abnormal returns were attainable by trading shares. Their results showed that an average 2.73% additional return could be observed by investors buying and holding the stock of an announcing firm 21 days around the announcement date. This paper considers the stock market reactions to foreign acquisitions of blocks (5% or more of the outstanding shares) of shares in domestic listed companies. We contend that this response may well differ according to the intention of the foreign investor, in so far as this is known to market participants. The foreign investors may well have made their acquisition because they perceive the target company s shares are undervalued and/or the company has good growth prospects. In such cases, the market response is likely to be positive but small, though a negative price reaction is also possible (Bishop, 1991). In contrast, the foreign investors may indeed wish to participate in the management of the company. If block investors have the power to influence the operating performance and corporate strategy of target companies, block acquisition will trigger the probability of corporate control transfer; change of board members, management turnover, and so on. Whenever the threat of external blockholders can be regarded as credible, managers will devote more effort to reach decisions that are shareholder-friendly. Outside blockholders monitoring thus promotes valuable internal control efforts for the companies (Sudarsanam, 1996). In particular, foreign investors have a tendency to demand better corporate governance in order to protect their investments. If they are the significant blockholders, their need to secure their interests will only be amplified. Sometimes block acquisition with management participation means that subsequent tender offers are imminent. Mikkelson & Ruback (1985) reported that 26% of the block acquisition announcements were eventually taken by the block acquirer or a third party within three years. Choi (1991) states that takeover attempts increase when blockholders already own significant portions of the target firms. Such foreign block acquisitions will thus have a positive impact on company value as stock market participants usually expect foreign investors to undertake strong monitoring activities. Our first hypothesis is thus: 5

6 H1: The stock market reaction to foreign share acquisitions made with the intention of management participation will be greater than that to foreign share acquisitions made only for investment purposes. There are two competing stock exchanges in Korea: the Korea Stock Exchange (KSE) and the KOSDAQ (Korean Securities Dealers Automated Quotation) exchange. KSE accounts for the majority of market capital, as well as listing numerous well-known companies such as Samsung Electronics and Hyundai Motors. KOSDAQ is mainly comprised of small-sized Korean Information, Communication and Technology (ICT) and Manufacturing companies. Generally, investors perceive the KSE market to be more stable than the KOSDAQ market (Shin, 2002), and there is greater liquidity. In many countries, foreign investors typically tend to focus on large companies listed on established stock markets, which demonstrate relatively stable fluctuations in share prices and trading volumes. Not only are such companies more reliable, but the trading volumes mean that stocks will be relatively easy to sell if need be. Higher returns may well be possible from investments in smaller, less liquid companies. Investors intending to acquire substantial blocks of shares in such companies have the incentive to access information about their targets and to undertake substantial market analysis. The knowledge that a foreign investor is considering an acquisition and is carrying out such activities transmits a message about the company s prospects, and this information will be reflected in an increase in the company s share price. Our second hypothesis is thus: H2: The stock market reaction to foreign share acquisitions will depend upon the nature of the stock exchange, and will be greater on smaller, less liquid stock markets. Business groups are a common feature of the corporate governance system in many countries, and in Korea they are known as chaebol. Such groups are corporate organisations which comprise various companies linked through cross-ownership and stock pyramids (Claessens et al, 2006). Such groups typically make widespread use of internal factor markets, particularly for finance. Affiliated companies can access the group s capital and managerial resources, and may be able to mobilise resources more readily or at a lower cost than in the external capital market because of reputation benefits and privileged access. Such are the 6

7 potential benefits of group affiliation, but there are also costs, notably that the operations of the affiliated companies have to accord with the interests of the group as a whole even if the company s objectives are not the same as group objectives. It is thus likely that new investors will have little opportunity to influence let alone change radically the operations of any company affiliated to a business group. H3: The stock market reaction to foreign share acquisitions will be greater in independent companies than in companies affiliated to business groups. 3. Data and Methodology The objective of this paper is to consider the possible effects of investment purpose, stock market characteristics, and business group affiliation on the stock market response to foreign share acquisitions. In this section, we explain how the data were collected, provide some descriptive statistics on the composition of the sample, and then outline the event study methodology that we used to assess the stock market response. 3.1 Data We constructed our dataset from the publicly accessible website provided by the Korean Financial Supervisory Service (FSS). The FSS maintains the DART (Data Analysis, Retrieval and Transfer System; website for the financial disclosures of listed companies, including those listed on both KSE and KOSDAQ. Data are available back to The financial data and daily stock prices of individual companies were collected from the database of KisValue. KisValue is maintained and updated by the Korea Information Service (KIS), a subsidiary of a leading credit rating agency in Korea, which has provided comprehensive corporate and financial information on all listed KSE and KOSDAQ companies since the early 1980s. Most Korean financial market studies depend on KisValue for its credibility and expansive data coverage. As we were interested in assessing the effects of investment purpose, we limited the dataset to announcements of foreign share acquisitions of more than 5% of the outstanding shares made between March and June We omitted acquisitions where the foreign investor already owned more that 5% of the shares in the domestic Korean company and was 7

8 supplementing its original holding, and this left us with a total of 422 cases. As noted in the Introduction, investors have to disclose the purpose of their investments: those intending to participate in the management of the domestic Korean company have to report their shareholdings using the general form, whilst those only making a (portfolio) investment fill out the basic form. We were thus able to distinguish between the 76 acquisitions made for management purposes (MP) and the 346 acquisitions made for investment only (INV). Table 1 details the breakdown of the two groups over the period As is evident, there was a marked drop in foreign acquisitions during on account of the global credit crisis. Table 1 Almost 60% of the sample consisted of companies listed on the KSE (239 cases) with the remaining 183 companies listed on the KOSDAQ exchange. Interestingly see Table 2 there was a much higher proportion of MP cases amongst the KOSDAQ listed companies (45/183 25%) than among the KSE listed companies (31/239 13%). About one-fifth (86) of the listed companies were members of chaebol, with the remainder being independent. Very few (8) of the MP cases were in group-affiliated companies. Table 2 The mean share acquisition for the whole sample was 7.60%, with a median figure of 5.27% - see Table 3. The average (mean and median) figures for the acquisitions involving management participation were markedly higher than those for the acquisitions for investment only, as one might expect. Also, the average (mean and median) figures for the KOSDAQ listed companies were higher than for the KSE listed companies, and the average figures for the independent companies were higher than for the chaebol-affiliated companies. Table Methodology The use of event study methodology (Fama et al, 1969) is commonplace in financial studies assessing the impact of key corporate events such as mergers and acquisitions, the appointment of new CEOs, major investment or divestments etc. The underlying theory is that an efficient stock market will react to all publicly-available information. If the market views the information in a favourable light, then the share price will rise; if the market perceives that the news is bad for the company then the share price will fall. The stock market response, measured 8

9 in terms of the average abnormal return (AAR) and the cumulative abnormal return (CAR), provides an indication of the expected impact of the event on the company. The event in this study is the public announcement of the foreign acquisition of shares in the domestic Korean company, with the day of the announcement defined as the event day (t = 0). The estimation period is 90 days commencing (t 120) days before the event day and ending on (t 31) days before the announcement. The event period is 61 days, from (t 30) days before the announcement to (t + 30) days after the announcement date. Thus, the total number of days for the empirical study is 151. Event period t= -120 t= -30 t= 0 t= +30 Estimation period Study period Various approaches have been used in the literature to estimate the abnormal return for a given stock. We adopt the market model to compute abnormal returns, and use Ordinary Least Squares (OLS) as the estimation procedure. The market model is defined in Equation (1). The benchmark index for stocks listed on the KSE is the Korea Composite Stock Price Index (KOSPI), and the benchmark index for stocks listed on the KOSDAQ exchange is the KOSDAQ index. where = yield of an individual stock (i) on day t = benchmark market index (KOSPI or KOSDAQ) on day t = regression coefficients of the market model = the error term for an individual stock (i) on day t 9

10 The market model computes the rates of return on a security over a particular holding period. Equation (2) illustrates a basic formula which calculates the abnormal returns of an individual sample for a day. During the event period [day (t 30) through day (t + 30)], the daily abnormal return for each firm, AR it, is calculated. Individual securities are aggregated into portfolios based on time periods relative to the event date, not calendar time. The average daily abnormal return (AAR) for a particular time period is calculated as the sum of the abnormal returns at that point divided by the number of securities in the portfolio. The equation for deriving the AAR of a day is seen in Equation (3). are the estimated market model coefficients The CAR (cumulative abnormal return) from t 1 to t 2 is the sum of the average abnormal returns(aar) for each day for the period and is defined in Equation (4). We estimate mean CARs for various intervals surrounding the announcement: (t = 0, t = +1), (t = -5, t = +5), (t = -15, t = +15), (t = -20, t = -1), (t = +1, t = +20) etc. Significance tests were undertaken for both the average and the cumulative average abnormal returns. The test statistics for AAR t and CAR(t 1, t 2 ) are shown in Equation (5) and Equation (6) respectively. 10

11 4. Results We first explored the stock market reaction using the whole sample of 422 announcements. We observed a highly significant AAR on the event day (t = 0, AAR = 0.47%, p < 0.01), see Table 4. Furthermore, the AARs on most days prior to the event are positive and significant, whilst those on most days after the event are negative. These results suggest that there has been information leakage regarding foreign block acquisitions. Prior to the disclosure, astute investors may have had access to information on the block acquisition. They could be at an advantage and buy the shares of target firms before the public announcement is made. Another explanation of positive pre-announcement returns results from the natural process of consecutively increasing demand for shares by foreign block holders. Prior to the disclosure of block acquisitions, foreign investors buy and hold substantial amounts of shares. Usually, the process of block acquisition takes a considerable amount of time, a couple of days at least. During the block acquisition, information of a large investment will be passed to professional investors. Also, foreign investors subconsciously reveal information about the target firms in the process of gathering information on investment prospects. However, after the announcement an adverse adjustment of abnormal price response is observed. Figure 1 shows the AARs and the CARs over the full event period. The CARs before the event date are positive, but then decline steadily thereafter reflecting the negative AARs after the event date. Table 4 and Figure 1 The analysis is then repeated, but separately for acquisitions where management participation (MP) was intended and where only investment (INV) was intended. The AARs for both groups are in Table 5, and these show that the AARs for the MP group are generally more positive than those for the INV group, plus the returns stay positive for longer after the event 11

12 date. These figures are reflected in the CARs in Figure 2, which show clearly that the average stock market response to the MP acquisitions is both stronger and longer-lasting than that of the INV acquisitions. The CARs for the two groups over various intervals were then compared using t-tests, with interesting results. The CAR (-10, +10) shows a mean difference of +6.9% (p < 0.05), whilst CAR (-5, +5) shows a mean difference of +5.6% (p<0.1) and CAR (-15, +15) shows a mean difference of +7.1% (p<0.1). The positive differences indicate a higher CAR for the MP companies than for the INV companies. In conclusion, these results demonstrate that the stock market takes into account the motivation of the foreign investors, and values investments made for management participation significantly higher than those made for investment only. Hypothesis 1 is thus strongly supported. Table 5 and Figure 2 As noted above, KSE and KOSDAQ have distinct characteristics. KOSDAQ is usually regarded as more volatile, and KSE has the more stable of the Korean stock markets. The headlines of the Korean media frequently report news of market manipulations, corporate deceit and private benefit transfers in KOSDAQ listed companies. The level of self regulation and market monitoring is relatively low in KOSDAQ, although the standard in the KSE are not regarded to be particularly high compared with long established stock exchanges such as New York and London. The AARs for the companies listed on the KSE and on the KOSDAQ exchange are shown in Table 6. There is a very significant positive AAR of 0.55% (p<0.01) for the KSE listed companies, but the corresponding figure for the KOSDAQ companies is both smaller and statistically insignificant. But there is evidence of large positive AARs on the KOSDAQ exchange from early in the event period (t = -25), and then large negative AARs in the days after the event date. This is reflected in the CARs in Figure 3, which show the greater volatility in the KOSDAQ market. The CARs for the companies listed on the two exchanges over various intervals were then compared using t-tests, with interesting results. The CAR (-15, +15) shows a mean difference of +4.04% (p < 0.1), whilst CAR (-10, +10) shows a mean difference of +0.85% (p>0.1) and CAR (-5, +5) shows a mean difference of +2.23% (p<0.1): the positive figures indicate a higher CAR for the KOSDAQ companies than for the KSE companies. In conclusion, these results demonstrate the differential responses of investors on the two stock markets, though this finding is sensitive to the choice of interval. Hypothesis 2 is thus supported, though with this caveat. 12

13 Table 6 and Figure 3 Finally, the analysis was again repeated, but separately for those companies that were affiliated to chaebol and those that were independent. The AARs for both groups are in Table 7, and these show that the AARs for the independent companies were generally more positive than those for the affiliated companies, which are often negative though small and statistically insignificant before the event date. However, the AARs for the independent companies were often negative after the event date whilst those for the affiliated companies remain small. Neither group shows a significant AAR on the event date, and very few AARs for the affiliated companies throughout the event period were statistically significant. These observations are reflected in the CARs in Figure 4. The plot for the affiliated companies is very flat throughout the period, suggesting a lack of stock market reaction to the news of foreign share acquisitions. This is probably because the market judges that foreign investors will have little scope for influencing the operations of companies that are part of powerful chaebols. In contrast, the CAR plot for the independent companies rises steeply before the event date, and then fall sharply afterwards. The CARs for the two groups of companies over various intervals were then compared using t-tests. The results for the major period CARs show slight differences between the two groups using a t test although there is a clear difference in the CAR plots. CAR (-10, +10) shows a mean difference of +2.3% (p > 0.1); CAR (-5, +5) shows a mean difference of +1.2% (p > 0.1); whilst CAR (-15, +15) has a negative result with a mean difference of -0.45% (p > 0.1). However, the pre announcement date CARs strongly support hypothesis 3. The CAR (-10, +1) and CAR (-30, +1) show significant positive mean differences of +2.86% (p < 0.05), +4.64% (p < 0.1) respectively between the two sample groups. The positive differences indicate a higher CAR for the independent companies than for the group-affiliated ones. In conclusion, these results demonstrate that the stock market takes into account the affiliation of the domestic target companies, and values investment in independent companies significantly higher than that made in companies affiliated to chaebol. Hypothesis 3 is supported, but careful interpretation would be needed to extend this result. Table 7 and Figure 4 13

14 4. Discussion and Conclusions Previous studies of stock market reactions to announcement of foreign share acquisitions have provided inconclusive results. In this paper we have since demonstrated that a possible reason for this is that there are systematic differences in the market reactions to acquisitions by different investors and in domestic companies with different organisational structures. In particular, we have shown that the stock market reaction is greater when investors announce their intention to participate in management, where markets are more volatile, and in domestic firms that are not affiliated to business groups. We have also replicated our analyses using different combinations of these three factors. Space constraints space precludes reporting these results here in detail, but two results are worthy of mention. The first is that the differential stock market response to MP and INV acquisitions is only apparent in companies listed on the KSE and is both significant and long-lasting, whilst there are no differences in the CARs for MP and INV acquisitions listed on the KOSDAQ exchange. The higher volatility in the second may mask more subtle effects that result from a new announcement. The second is that the differential stock market response to MP and INV acquisitions is only apparent in independent companies, whilst there are no differences in the CARs for MP and INV acquisitions of group-affiliated companies. This is a sensible result as affiliated companies are much more difficult to influence. 14

15 References Bishop, S. (1991). Pre-bid acquisitions and substantial shareholder notices. Australian Journal of Management, 16(1): Cheng, L & Fung, J (1998). 'An examination of the determinants of stock-price effects of US- Chinese joint venture announcements.' International Business Review, 7(2): Choi, D. (1991). Toehold acquisitions, shareholder wealth, and the market for corporate control. Journal of Financial and Quantitative Analysis, 26(3): Claessens, S., Fan, J. & Lang, L. (2006). The benefits and costs of group affiliation: evidence from East Asia. Emerging Markets Review, 7: Ding, K.D. & Sun, Q. (1997). 'The information content of FDI announcements: evidence from an emerging market.' International Review of Financial Analysis, 6(1): Fama, E., Fisher, L., Jensen, M.C. & Roll, R. (1969). The adjustment of stock prices to new information. International Economic Review, 9(3): García-Canal, E. & Sánchez, P.L. (2006). The number of partners and the stock market reaction to domestic and international alliance formation in EU telecom firms. International Business Review, 16(1): Kim, W.S. (2000). Does FDI increase firm value in emerging markets? Harvard University, Weatherhead Centre for International Affairs, Working Paper López-Duarte, C. & García-Canal, E. (2007). Stock market reaction to foreign direct investments: interaction between entry modes and FDI attributes. Management International Review, 47(3): Meschi, P.X. & Cheng, L.T.W. (2002). Stock price reactions to Sino-European joint ventures. Journal of World Business, 37(2): Mikkelson, W.H. & Ruback, R.S. (1985). An empirical analysis of the interfirm equity investment process. Journal of Financial Economics, 14: Morck, R. & Yeung, B. (1992). Internalization: an event study test. Journal of International Economics, 33(1-2): Sudarsanam, S. (1996). Large shareholders, takeovers and target valuation. Journal of Business Finance & Accounting, 23(2): Ueng, C & Kim, S (1996). Foreign direct investment and shareholders wealth: evidence from the newly industrialized countries (NICS) Multinational Business Review, 4(2):

16 Woolridge, J.R. and Snow, C.C. (1990). Stock market reaction to strategic investment decisions. Strategic Management Journal, 11(5):

17 Table 1: Sample statistics - by year and investment purpose Year Management Participation (MP) Investment Only (INV) Total (32%) (33%) (24%) (8%) (3%) Total Table 2: Sample statistics - by stock market and group affiliation Management participation (MP) Investment only (INV) Total Stock Market KSE KOSDAQ Total Group affiliation Chaebol member Independent Total Table 3: Sample Statistics - average share acquisitions Mean share acquisition Median share acquisition Investment purpose Management participation (n=76) 14.98% 8.66% Investment only (n=346) 5.97% 5.19% Stock Exchange KSE (n=239) 6.57% 5.12% KOSDAQ (n=183) 8.93% 5.77% Group affiliation Chaebol member (n=86) 6.19% 5.11% Independent (n=336) 7.96% 5.41% Whole sample (n=422) 7.60% 5.27% 17

18 Table 4: The Average Abnormal Returns for the Full Sample of Foreign Acquisitions Date AAR t value p value Significance *** *** ** * ** *** ** ** ** Significance levels: * 10%, ** 5%, *** 1% 18

19 Table 5: The Average Abnormal Returns by Investment Purpose Date MP (n=76) INV (n=346) AAR t value AAR t value ** *** *** ** ** ** *** * *** * Significance levels: * 10%, ** 5%, *** 1% 19

20 Table 6: The Average Abnormal Returns by Stock Exchange Date KSE (n=239) KOSDAQ (n=183) AAR t value AAR t value *** ** *** *** * ** *** *** (0.3444) (0.2935) (0.1169) * (0.2102) * (0.3295) ** (0.0466) (0.3051) Significance levels: * 10%, ** 5%, *** 1% 20

21 Table 6: The Average Abnormal Returns by Group Affiliates Date Group affiliates (n=86) Independent (n=336) AAR t value AAR t value * ** * *** *** *** ** * * * ** ** * ** ** ** Significance levels: * 10%, ** 5%, *** 1% 21

22 Figure 1: The Stock Market Response to Foreign Share Acquisitions (whole sample) Figure 2: The Stock Market Response to Foreign Share Acquisitions: Comparison by Investment Purpose 22

23 Figure 3: The Stock Market Response to Foreign Share Acquisitions: Comparison by Stock Exchange Figure 4: The Stock Market Response to Foreign Share Acquisitions: Comparison by Group Affiliation 23