Foreign Corporate Ownership and Dividends

This paper investigates the relatively unexplored relationship between dividends and ownership structure in an emerging market setting. Using a unique panel dataset of foreign ownership and firm attributes of listed Korean firms, we first characterize foreign ownership after the full capital market liberalization in 1998. Foreign investors in Korea tend to overweight larger and profitable firms with large export sales and underweight highly leveraged firms with low market-to-book ratio. Then we explore the effects of the rise in foreign ownership on dividend policies in Korea. Firms make higher dividend payouts as the shareholdings of foreigners increase. This result is consistent with the agency theory view of dividends, i.e. dividends can substitute for direct monitoring of firms by large external shareholders. .