Foreign board membership and firm value in Korea

Hyang Mi Choi · Wonsik Sul

110 citations0/0 files storedManagement Decision

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Corporate Finance and Governance International Business and FDI Gender Diversity and Inequality

Abstract

Purpose This paper seeks to explore such questions as: “What are the impacts of foreign investors and what are the channels through which foreign investors contribute to or detracts from firm value in Korea?” It aims to discuss how foreign investors and foreign outside directors interact to enhance firm value. Design/methodology/approach Using longitudinal data from the KOSPI200 index in Korea during 2004‐2007, the study examined the direct and interaction effect of foreign blockholders and foreign board members. To address the representativeness of foreign investors, the authors verified the mandates of foreign board members though telephone interviews. Findings Foreign block shareholders and foreign outside directors respectively provide expertise and independent monitoring over management. Foreign blockholders' management control via board membership is likely to mitigate leverage of value enhancement when foreign outside directors represent private interests of foreign blockholders. The moderating effect is also supported since foreign ownership concentration has an inverted U‐shaped relationship with value enhancement. The paper confirms that board independence reinforces the positive impact of foreign outside directors on firm value. Research limitations/implications This study offers a key to understanding corporate governance in that mutual monitoring and a balance among various types of stakeholders are crucial to value enhancement. Originality/value The paper provides clues to the extant diverse findings concerning the impact of foreign investors on firm value. It applies an integrated perspective to the empirical analyses of the impact of foreign investors by giving consideration to the agency – foreign outside directors – to implement management control on behalf of foreign blockholders.

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References

1983Separation of Ownership and Control 1978Specification Tests in Econometrics 1986Large Shareholders and Corporate Control 1988Management ownership and market valuation 2000Investor protection and corporate governance 1985The Structure of Corporate Ownership: Causes and Consequences 2005Understanding Interaction Models: Improving Empirical Analyses 1963CORPORATE INCOME TAXES AND THE COST OF CAPITAL: A CORRECTION

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