Why did the popular K-pop group, BTS entertainment, experience a 52% stock market crash?


Big Hit Entertainment, the entertainment corporation of the globally known k-pop boy group BTS, jumped into the stock market in October this year. Due to the global popularity of BTS, the entertainment company was one of the hottest listings in the stock market, rocketing up to 351,000 won per share on the first day it went public, 160% of its public offering price.

However, the entertainment company soon experienced a 52% crash from the peak on the first day, reaching its lowest point of 142,000 won per share on October 30th. What caused this big crash? 

The biggest reason for this sharp fall in its stock price is because of the immediate selling of stock of the investors. For example, Mainstone, the 4th major shareholder of Big Hit sold a large amount of stock worth about 360 billion won immediately after listing, and sold 2,759 billion won just in four days of trading since listing. Another shareholder, ‘Easton’s No. 1 Private Equity Partnership’, which was not on the list of the main shareholders of Big Hit, sold 38,1112 shares, taking advantage of the total of 88.5 billion won. So, what has caused them to sell their shares immediately after listing?

One possibility is the ‘learning effect’ of investors in the stock market. When new firms enter the stock market, their shares tend to show a decreasing trend in the share price after the entrance. In fact, the share prices of two large companies, SK Biopharm and Kakaogames, which entered the market before Big Hit, fell after their first listings. Watching this trend, investors could have thought that they should sell Big Hit’s share immediately after its listing for the greatest gain.

Moreover, investing in entertainment companies is followed by a big risk as the share price depends on the artists’ popularity and achievements. In the case of Big Hit, the sales revenue of the entertainment relies heavily on BTS’s performance. With BTS contributing to 88% of Big Hit’s sales revenue, the company’s shareholders have no choice but to depend on the performance of BTS.

It seems that the learning effect the investors obtained from past experiences and the potential risks that the entertainment possesses has led to many main shareholders and investors selling their shares immediately after listing, resulting in the stock crash of Big Hit.

The damage of this crash went straight to individual investors, especially novice investors, who invested heavily in Big Hit, having high expectations on the successful group of BTS. Even at the moment, hundreds of investors who are facing big losses are requesting a refund from Big Hit Entertainment. “I used money I have been saving up for my wedding to buy Big Hit shares at around 300,000 won per share – 50 million won ($44,842.65) worth. Is there a way I can get that refunded if I show receipts and file for some kind of petition?” wrote one of the investors on the local portal, ‘Naver’. Another investor said that he used his deposit to buy Big Hit stock and his wife is demanding a divorce.

It is very difficult to predict whether the stock price will increase or decrease. However, it is necessary to look at the past trend of the company’s stock in the market and conduct extensive research on that company in terms of its overall course of actions, achievements, and latest issues before buying its stock. Buying large amounts of shares of a newly enrolled company can be incredibly risky, as we have learned from Big Hit and BTS.