Empirical studies on the stock market reaction of Korean firms by 9-11 terror

Abstract

This paper investigates how Korean firms differently react to unexpected external impacts such as the 9-11 terror depending on their industry groups: IT and Non-IT. We consider financial ratios as independent variables to explain Korean firm"s stock reaction. For this purpose, 44 and 60 sample companies were selected from the population of IT industry and Non-IT industry respectively. We used the event studies methodology for analyzing market movement before-200 days and after-25 days from an event under focusing. The industry group effect was confirmed. The Korean IT and Non-IT companies were affected for different duration: 15 days for IT and 5 days for Non-IT, respectively, by 9-11 terror shock. On the magnitude of cumulative abnormal returns(CARs), Korean IT companies invoked more negative CARs than Korean Non-IT companies did. Also, we found that IT firms with good "profitability" and "cash flow" and Non-IT firms with good "profitability" tend to be less influenced by external shocking events.