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Does control-ownership disparity matter to foreign investors in Korea?

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  • Lee, Youkyoung
  • Cho, Myeonghyeon

Abstract

This study examines the effect of control-ownership disparity on foreign investors investing in Korean firms. Control-ownership disparity occurs when certain shareholders of a firm have actual voting power that exceeds the corresponding equity ownership. This may matter to foreign investors because the disparity gives rise to the risk of tunneling by the controlling shareholders. The empirical results show that foreign investors prefer firms with low control-ownership disparity, suggesting that they are sensitive to corporate governance of firms they invest in. More interestingly, foreign portfolio investors are more sensitive to control-ownership disparity than foreign strategic investors who are usually corporations in related industries. Further, the control-ownership disparity has stronger negative effects on foreign portfolio investors when they invest in Chaebol-affiliated firms than non-Chaebol firms.

Suggested Citation

  • Lee, Youkyoung & Cho, Myeonghyeon, 2016. "Does control-ownership disparity matter to foreign investors in Korea?," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 219-231.
    • Handle: RePEc:eee:reveco:v:44:y:2016:i:c:p:219-231
    DOI: 10.1016/j.iref.2016.04.007
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    Cited by:

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    2. Kang, Sanggyu & Chung, Chune Young & Kim, Dong-Soon, 2019. "The effect of institutional blockholders' short-termism on firm innovation: Evidence from the Korean market," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    3. Chauhan, Yogesh & Kumar, Surya B., 2019. "Does accounting comparability alleviate the informational disadvantage of foreign investors?11We thank the editor, Professor Carl R. Chen, and two reviewers for their comments that greatly improved th," International Review of Economics & Finance, Elsevier, vol. 60(C), pages 114-129.

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    More about this item

    Keywords

    Foreign portfolio investors; Foreign strategic investors; Corporate governance; Control-ownership disparity;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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