Foreign board membership and firm value in Korea

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.