Ownership-Control Disparity and Foreign Investors' Ownership: Evidence from the Korean Stock Market

Abstract

We examine one effect of a firm's ownership-control disparity on foreign investors in emerging markets by investigating how the disparity influences foreign investors' shareholdings in Korean firms. Using a panel sample of 192 firms from 2005 to 2009, we find that foreign shareholders invest less in companies with high ownership-control disparity, which suggests that distorted ownership structure negatively affects foreign investors' shareholdings. We also find that foreign industrial investors invest less in companies with high disparity than do foreign financial investors. This study emphasizes the role of foreign investors in a globalized emerging market to the extent that foreign investors influence firms' governance with their investment decisions.