Foreign Corporate Ownership and Dividends

Dominic Heesang Chai

27 citations0/0 files storedRePEc: Research Papers in Economics

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Corporate Finance and Governance Financial Markets and Investment Strategies International Business and FDI

Abstract

This paper investigates the relatively unexplored relationship between dividends and ownership structure in an emerging market setting. Using a unique panel dataset of foreign ownership and firm attributes of listed Korean firms, we first characterize foreign ownership after the full capital market liberalization in 1998. Foreign investors in Korea tend to overweight larger and profitable firms with large export sales and underweight highly leveraged firms with low market-to-book ratio. Then we explore the effects of the rise in foreign ownership on dividend policies in Korea. Firms make higher dividend payouts as the shareholdings of foreigners increase. This result is consistent with the agency theory view of dividends, i.e. dividends can substitute for direct monitoring of firms by large external shareholders. .

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 2001Econometric Analysis of Cross Section and Panel Data 1978Specification Tests in Econometrics 1998Law and Finance 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1958The Cost of Capital, Corporation Finance and the Theory of Investment 1999Corporate Ownership Around the World 1986Large Shareholders and Corporate Control

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