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

Doowon Ryu

Finance Research Letters, 2020, vol. 35, issue C

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.

Keywords: Product market competition; Free trade agreement; Difference-in-differences; Tariff elimination (search for similar items in EconPapers)
JEL-codes: L11 L22 G10 F10 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:35:y:2020:i:c:s1544612319304647

DOI: 10.1016/j.frl.2019.09.011

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