Are Foreign Investors Really Beneficial? Evidence from South Korea

46 Pages Posted: 2 Feb 2010 Last revised: 27 Feb 2014

See all articles by Jacqueline L. Garner

Jacqueline L. Garner

Georgia Institute of Technology - Scheller College of Business

Won Yong Kim

Augsburg College

Date Written: July 30, 2011

Abstract

We examine whether foreign investors impact corporate governance by analyzing the relation between foreign share ownership and pay-performance sensitivity. While the extant literature has examined the impact of foreign ownership, the evidence for emerging markets is limited. We test our hypotheses using a sample of Korean firms, an emerging market with unique characteristics. We find that firms with higher foreign share ownership demonstrate significant pay-performance sensitivity while their low foreign share counterparts do not, suggesting that foreign investors may be good monitors. We control for the endogenous bias that foreign investors may only invest in firms that have already exhibited good governance practices, and our results are unchanged. We also find that the highest pay-performance sensitivity appears in chaebol firms with higher foreign share ownership. Our results suggest that foreign shareholders are able to promote improved corporate governance in an emerging market.

Keywords: Corporate governance in Korea, Pay-performance sensitivity, Foreign shareholders

JEL Classification: G15, G34

Suggested Citation

Garner, Jacqueline L. and Kim, Won Yong, Are Foreign Investors Really Beneficial? Evidence from South Korea (July 30, 2011). Available at SSRN: https://ssrn.com/abstract=1546782 or http://dx.doi.org/10.2139/ssrn.1546782

Jacqueline L. Garner

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Won Yong Kim (Contact Author)

Augsburg College ( email )

United States

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