The Signal Outside Directors Send to Foreign Investors

Abstract

This paper explores how the composition of a firm's outside directors influences the growth of foreign investment in the firm. In this paper, we explore a signaling role of the composition of a firm's outside directors by examining how the composition influences the growth of foreigners' investment in the firm. Our analysis of large Korean firms shows that the growth of foreign ownership is positively affected if a higher proportion of outside directors hold advanced foreign degrees, if a higher proportion of outside directors work in the governmental organizations, or if a higher proportion of outside directors have job experience in the same industry.