The Effect of U.S. Protectionist Trade Policy on Foreign Ownership: A Study of Korea’s Data Set

Abstract

Purpose – This study analyzed the effect of the Trump Government’s protectionist trade policies on foreign ownership. Specifically, this study empirically analyzes the hypothesis that foreign ownership will decrease after the Trump Government rather than before the Trump Government. Design/methodology – The hypothesis of this study is based on the expectation that US protection trade policy will negatively affect the profitability of Korean companies. The dependent variable in this study is the foreign ownership ratio, and the independent variable is a dummy variable representing before and after the Trump Government. Multiple regression analysis was performed, including the control variables suggested in previous studies related to foreign ownership. Findings – As a result, foreign ownership increased after the Trump Government rather than before the Trump Government. This study further analyzes whether the main variables affecting foreign investor’s decision-making are differences before and after Trump Government. The export ratio, profitability and dividends did not differ before and after Trump Government. However, the level of information asymmetry decreased after the Trump Government than before the Trump Government. This suggests that US protection trade policies do not adversely affect the profitability of Korean companies. However, Korean firms are improving their information environment because US protectionist trade policies can lower profitability and negatively impact capital raising. In this regard, the foreign ownership ratio seems to differ before and after the Trump Government. Originality/value – This study contributes in that it presents data that US protectionist policies can affect Korean corporate governance. This study has implications from the short-term analysis of US protection trade policy.