Impact of Foreign Institutional Investors on Dividend Policy in Korea: A Stock Market Perspective

Abstract

This paper empirically investigates the impact of foreign institutional investors on corporate dividend policy in the Korean stock market. Using sample firms whose ownership by foreign investors was 5% or higher through the fiscal period from 2001 to 2007, we find that foreign institutional investors with more than 5% of a company’s shares can exert a significant impact on dividends. In addition, we find that the more shares that foreign institutional investors have over major shareholders and the more shares that foreign institutional investors have over the previous year, the stronger the impact of foreign institutional investors have on corporate dividend policy. This study empirically shows the impact of foreign institutional investors from the viewpoint of corporate governance in Korea, where local institutional investors play inadequate roles as stakeholders. It also complements the methodological problems pointed out in previous studies by applying a panel model.