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http://dx.doi.org/10.13106/jafeb.2021.vol8.no12.0261

The Effects of Blockholder Diversity on the Firm Risk: Evidence from Korea  

KIM, Hung Sik (College of Management and Economics, Dongguk University Gyeongju Campus)
CHO, Kyung-Shick (College of Management and Economics, Dongguk University Gyeongju Campus)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.12, 2021 , pp. 261-269 More about this Journal
Abstract
This study examines the effect of block diversity on the risk of firms listed on the Korean Stock Exchange between 2010 and 2017. To examine the effect of block diversity on corporate risk, we measure block diversity in terms of a single component, portfolio size, by referring to prior literature. This diversity component accounts for the differences in portfolio size across corporate blocks. In line with existing research on corporate risk, we consider several variables to measure corporate risk: volatility, beta, and idiosyncratic risk. The results show a negative relationship between the size of a block shareholder's portfolio and corporate risk. We also show no difference in the effect of block diversity on the corporate risk between KOSPI and KOSDAQ. This implies that the difference in portfolio size among corporate blocks reduces corporate risk. This may be due to the effect of inter-block monitoring activities in the Korean securities market, which benefits from block diversity. This empirical result supports previous studies that predicted that block diversity would have beneficial influences on firm monitoring in general. This study is significant in that it analyzes the relationship between block diversity and firm risk and provides relevant information to business practitioners and investors.
Keywords
Blockholder Diversity; Volatility; Beta; Idiosyncratic Risk;
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