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Are foreign investors really beneficial? Evidence from South Korea

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  • Garner, Jacqueline L.
  • Kim, Won Yong

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 potential self-selection bias that foreign investors may only invest in firms that have already exhibited good governance practices, and our results are unchanged. Our results suggest that foreign shareholders are able to promote improved corporate governance in an emerging market.

Suggested Citation

  • Garner, Jacqueline L. & Kim, Won Yong, 2013. "Are foreign investors really beneficial? Evidence from South Korea," Pacific-Basin Finance Journal, Elsevier, vol. 25(C), pages 62-84.
  • Handle: RePEc:eee:pacfin:v:25:y:2013:i:c:p:62-84
    DOI: 10.1016/j.pacfin.2013.08.003
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    1. repec:eee:ememar:v:32:y:2017:i:c:p:116-129 is not listed on IDEAS
    2. Pham, Nga & Oh, K.B. & Pech, Richard, 2015. "Mergers and acquisitions: CEO duality, operating performance and stock returns in Vietnam," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 298-316.
    3. Cheong, Juyoung & Kim, Woochan, 2014. "Revisiting Executive Pay in Family-Controlled Firms: Family Premium in Large Business Groups," MPRA Paper 59250, University Library of Munich, Germany.
    4. repec:eee:pacfin:v:43:y:2017:i:c:p:72-83 is not listed on IDEAS
    5. Bereskin, Frederick L. & Kim, Bushik & Oh, Frederick Dongchuhl, 2015. "Do credit rating concerns lead to better corporate governance? Evidence from Korea," Pacific-Basin Finance Journal, Elsevier, vol. 35(PB), pages 592-608.

    More about this item

    Keywords

    Corporate governance in Korea; Pay-performance sensitivity; Foreign shareholders;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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