Outside Directors and Stock Return Volatility: The Foreign Investor Connection

41 Pages Posted: 25 Nov 2012

See all articles by Steven J. Jordan

Steven J. Jordan

Econometric Solutions

Ji-Hwan Lee

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Elisabeth A. Bui

Graduate School of International Studies

Date Written: 5 24, 2012

Abstract

In this paper we note that unrelated research in the management and finance fields, if combined, makes predictions concerning board reforms in emerging countries. Specifically, outside directors’ demographic characteristics that are salient to foreign investors should reduce stock price volatility in the local market. We investigate a sample of large public Korean firms in 2000-2003, a watershed period when Korean firms were forced to introduce a significant number of outside directors and allow a substantially larger amount of foreign ownership in the wake of the 1997 Asian Financial Crisis. Our empirical results show that the proportion of outside directors with advanced foreign degrees stabilizes stock price volatility. Given the possibility of bilateral interplay between board characteristics and foreign ownership, this study employs a variety of econometric models, including feedback, to test the robustness of our empirical results.

Keywords: volatility, regulation, corporate governance, foreign investors, emerging markets

JEL Classification: G15, G18, G34, G38, K22, L51, D21, C33

Suggested Citation

Jordan, Steven J. and Lee, Ji-Hwan and Bui, Elisabeth A., Outside Directors and Stock Return Volatility: The Foreign Investor Connection (5 24, 2012). Available at SSRN: https://ssrn.com/abstract=2180360 or http://dx.doi.org/10.2139/ssrn.2180360

Steven J. Jordan (Contact Author)

Econometric Solutions ( email )

3520 Fossil Park Dr.
Fort Worth, TX NA 76137
United States

Ji-Hwan Lee

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegi-ro
Dongmoon-gu
Seoul, 130-722
Korea

Elisabeth A. Bui

Graduate School of International Studies ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea, Republic of (South Korea)

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