Effects of Foreign Ownership on Payout Policy : Evidence from the Korean Market

In this paper we examine the relationship between foreign ownership and the decisions on payout policy in the Korean stock market. The evidence indicates foreign investors show a preference for firms that pay high dividends. When they have substantial shareholdings, foreign investors lead firms to pay more dividends. The results are driven by the fact that most of the foreign investors in the Korean market are institutional investors and thus have both dividend clienteles and monitoring incentives. However, foreign investors neither express preference for firms that buy back shares, nor are they associated with encouraging firms to increase repurchases. The results are robust after controlling for endogeneity. We find little evidence that domestic institutions have a significant effect on payout policy