Foreign ownership and investment: evidence from Korea

Abstract

This study examines whether an increase in foreign ownership affects investment in Korea. Many studies have shown that in an imperfect financial market, a firm's investment depends on the availability of internal funds. If high foreigners' shareholding is a sign of a firm's good financial position, and if foreign investors demand better corporate governance to protect their investments, then cash-flow sensitivity of investment decreases with the level of foreign ownership. Using data from Korean firms, it is found that cash-flow sensitivity of investment is lower in firms with high foreign ownership than in those with low foreign ownership. This finding is regarded as evidence for a potential benefit of open financial markets.

Determinants of firms’ investment behaviour: a multilevel approach

“…in 14.92% of the countries' foreign firms invest the same or relatively more than domestically owned firms. Therefore, despite that foreign equity ownership appears to be associated with relatively less investment, our results by no means contradict the work of Koo and Maeng (2006) who on the basis of a country case study (on Korea) argue that foreign ownership positively influences investment.…”

“…Agosin and Machado, 2005), the microeconomic literature has been more successful in determining the relative benefit of foreign capital investment over investment under national control. For example, Koo and Maeng (2006) finds that Korean firms with high foreign ownership have relatively higher investment levels because foreign ownership decreases cash-flow sensitivity.…”

“…2 Koo and Maeng (2006) use GMM and firm data from 1992-2002. Investment is measured as the ratio of capital expenditure at the beginning of each year over the capital stock at the beginning of each are unaware of previous studies on the effect of foreign ownership on investment in a crosscountry (firm-level) setting.…”

Effect of Ownership Structure on Corporate Diversification of Listed Firms in Kenya

“…Other than improving performance, foreign investors, unlike others, are extraordinary. Through their strong network (Koo & Maeng, 2006); (Mihai, 2012), reputation and relation (Li et al, 2009), more resources are attracted to the firm (Ongore, 2011). To be specific, foreign investors contribute capital through equity ownership (Gurunlu & Gursoy, 2010), varied sources of finances (Li et al, 2009), and resources in form of specified assets (Kimura & Kiyota, 2007).…”

“…Secondly, foreign investors are known to have a sole objective of maximizing their portfolios (Thai, 2019). In the process, foreign investors not only influence decisions but also provide access to resources (Ongore, 2011) such as assets (Kimura & Kiyota, 2007), equity capital (Gurunlu & Gursoy, 2010) and external financing (Koo & Maeng, 2006). In Vietnam, (Phung, Phan, Nguyen, & Le, 2016) examined the effect of foreign ownership on corporate diversification.…”