Foreign investors and corporate governance in Korea

Abstract

This paper shows there is a close relationship between corporate governance and the portfolio held by foreign investors. 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. We also examine how the Korean business groups (chaebols) affect the portfolio formation of foreign investors and find no significant result after controlling for size. Among other firm-specific attributes, size plays the most important role for explaining foreign ownership. 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.