Foreign Investors and Corporate Governance in Korea

Abstract

This paper has two aims. The first aim is to investigate whether poor corporate governance negatively affects equity participation by foreign portfolio investors. The second aim is to investigate whether firm-level efforts to improve on corporate governance attract more foreign portfolio investments. The evidence indicates that foreign equity ownership is negatively associated with ownership concentration and positively associated with firm’s efforts to improve on corporate governance. Interestingly, however, domestic investors behave differently from foreign investors in that the latter group appears to be less sensitive to firm-level corporate governance than the former group.