The Positive Impact of Corporate Governance on Foreign Equity Ownership: Evidence from Korea
49 Pages Posted: 19 Mar 2012
Date Written: March 19, 2012
We investigate whether the newly introduced outside director system affected firm ownership structure in South Korea, where the governance system changed significantly after the 1997 financial crisis. Using a unique dataset, we conduct panel data analyses for publicly traded Korean non-financial corporations. Results indicate that foreign investors place considerable value on the appointment of independent directors. An increase in foreign ownership, associated with an improvement in the corporate governance system, occurred after controlling home bias and firm size. Further, the positive effect of an outside director system on foreign ownership was greater for independent firms than it was for conglomerates (chaebols) and their affiliates. However, the expected decline in investment by banks with the change in governance to the outsider model was not supported.
Keywords: corporate governance, outside directors, foreign ownership, bank ownership, Korea
JEL Classification: G32, G34, G39
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