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The US–Korea free trade agreement as a shock to product market competition: Evidence from the Korean stock market

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  • Ryu, Doowon

Abstract

This study examines the effect of product market competition on stock returns by treating the establishment of the US−Korea Free Trade Agreement (KORUS FTA) as an external shock. We use the degree of tariff reduction resulting from the KORUS FTA to construct a unique dataset for measuring product market competition. We sort firms into high-tariff-change (treatment group) and low-tariff-change groups (control group) and use the controlled difference-in-differences method to mitigate any possible endogeneity problems. We find clear empirical evidence that product market competition significantly negatively affects stock returns.

Suggested Citation

  • Ryu, Doowon, 2020. "The US–Korea free trade agreement as a shock to product market competition: Evidence from the Korean stock market," Finance Research Letters, Elsevier, vol. 35(C).
    • Handle: RePEc:eee:finlet:v:35:y:2020:i:c:s1544612319304647
    DOI: 10.1016/j.frl.2019.09.011
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    References listed on IDEAS

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    Cited by:

    1. Ryu, Doowon, 2022. "Product market competition and business groups in Korea," Finance Research Letters, Elsevier, vol. 47(PA).

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    More about this item

    Keywords

    Product market competition; Free trade agreement; Difference-in-differences; Tariff elimination;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • F10 - International Economics - - Trade - - - General

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