Journal of Corporate Finance 
Volume 15, Issue 4, September 2009, Pages 505–522 

  

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Woochan Kim (a), (1), , Woojin Kim (b), , , Kap-Sok Kwon (c), (2), 
a KDI School of Public Policy and Management, Chungrangri-Dong Dongdaemun-Ku, Seoul, 130-868, Republic of Korea 
b Korea University Business School, Anam-Dong, Seongbuk-Gu, Seoul, 136-701, Republic of Korea 
c KT Corporation, Jungja-Dong, Bundang-Gu, Seongnam-Si, Gyeonggi-Do, 463-711, Republic of Korea 
http://doi.org/10.1016/j.jcorpfin.2009.04.002 



Abstract 

This paper measures the value of shareholder activism focusing on outside blockholders who switch their investment purpose from passive to active but are not likely to engage in control-related activities. Unlike the usual 5% ownership disclosure, a switch does not necessarily involve additional share purchase, and thus provides a cleaner test in effectively ruling out alternative theories such as those related to stock picking skills, private information, or herding. We apply the test to outside blockholders in the Korean market, which experienced a concentrated number of switchers in the first half of 2005 when the government adopted a new disclosure rule. We find that target price reaction is significantly positive around the time of the switch disclosure and this effect is more pronounced when the switcher declares to use a wider scope of activist measures. Following the switch, we also find evidence of increases in dividend payouts for firms targeted by switchers with a wider scope of activism, and those with high free cash flows. 

JEL classification G34 

Keywords 

Blockholders; 
Shareholder activism; 
Investment purpose; 
5% rule; 
Korea