Shareholder reactions to corporate label change: evidence from South Korean firms
Authors: Gang KwangWook , Eun Jihyun , Choi Byungchul 
Published: January 2023

PurposeThis paper aims to provide empirical evidence on the impact of a corporate label change (CLC) from investors' perspective, especially based on the stakeholder approach to corporate identity. The resource-based theory has been used as a theoretical root of understanding the antecedents and consequences of brands. The authors specifically examine how two important types of firm-level heterogeneity – firm size and firm age – change shareholder reactions. In addition, the authors also test the moderating effects of firm performance.Design/methodology/approachUsing Korean company data, the authors first calculate the cumulative abnormal return (CAR) with the two-day event window [−1,0]. Then, the authors test the impacts of firm size and age on CAR with ordinary least squares regressions. To understand greater dynamics, the authors also test the moderation effects of firm performance. For the robustness check, the authors test using a different event window and different measures as well.FindingsThe findings for South Korean companies reveal that CLC itself does not significantly affect shareholder value. However, firm size and firm age show positive and significant coefficients. This means that larger and older firms are more likely to have better investor reactions. In addition, the authors also test a moderation effect of firm performance. The result shows that the impact of firm size weakens when firms have better performance.Research limitations/implicationsThe first limitation is the generalizability of the findings, particularly those regarding the impacts of CLC on investor reactions. A second limitation is that the authors did not consider the time gaps between CLCs. Third, there are limitations of using an event study with stock market data due to the ambiguity of the causal relationship between a firm's strategic choices and market reactions. Lastly, the authors use all CLCs except CLCs related to corporate governance (i.e. mergers and acquisitions).Practical implicationsAlthough managers expect positive relations by introducing new corporate label, the outcomes may not be sufficient because potential losses (i.e. losing royal customers) are significant. Hence, more careful considerations are required when a manager forms a new CLC. The results provide valuable insights for the conditions when large and aged companies pursue CLCs. In addition, the needs of a CLC are increasing when a company shows underperformance. Poor performance is a trigger for introducing new strategic choices (Boeker, 1997). The finding can be another supporting material for managers to consider when they intend to perform CLCs.Originality/valueThe authors probe the effect of CLC on external stakeholders, particularly investor reactions. The current literature has discussed the impacts of CLC on employees, internal stakeholders, and customers, external stakeholders. To the best of the authors’ knowledge, there is no strategy for understanding a CLC under stakeholder aspects. The authors believe that the findings contribute to the extant literature on CLC. This question is also important to a manager. Although introducing a new corporate label is a popular strategy for firms to provide corporate identity to various stakeholders, many cases have shown mixed results. This research provides evidence of what to consider when a manager makes its decision.