Ownership Structure and the Survival of Listed Firms: Evidence from Korean Reverse Mergers

Abstract

We examine the impact of ownership structure on the post-performance of Korean firms that go public as the result of a reverse merger. Although a reverse-merger announcement has positive cumulative abnormal returns (CARs), we find that 24.8% of reverse-merged firms become delisted because of poor post-performance, seemingly due to the agency problem. We also find that expected changes in management after a reverse merger positively affect the CARs of public target firms around the time of the reverse-merger announcement. However, the post-performance of reverse-merged firms is relatively poor compared to firms that undertake regular initial public offerings. Further, we find that ownership concentration alleviates poor performance following a reverse merger.

Voluntary Audit Committees and Financial Reporting: Korean Evidence*

“…(2011) suggest that CEO involvement in the board selection process eliminates the monitoring benefits of an audit committee, which otherwise appears independent and financially sophisticated. In Korean firms, controlling shareholders tend to affect critical corporate decisions (Han and Kwon, 2015). In such a situation, the expansion of major shareholders’ influence over the audit committee selection process may weaken audit committees’ monitoring function.…”

Reverse mergers and stock price crash risk: evidence from China

“…, 2013). In the South Korean market, RMs supported by venture capital (VC) have higher leverage, lower profitability and higher information asymmetry than VC-backed IPOs (Kim and Chang, 2014), and although investors have positive expectation for RM firms, the post-performance of RMs is not satisfactory due to agency problems prevalent in Korea (Han and Kwan, 2015). In summary, agency problems are prevalent in RM firms and they suffer from information asymmetry.…”