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Foreign ownership and investment: evidence from Korea

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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.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840500427817

Affiliations: Department of Economics, Chonnam National University, 300 Yongbong, Gwangju, Korea

Publication date: November 10, 2006

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