The diffusion of corporate governance to emerging markets: Evaluating two dimensions of investor heterogeneity

Woochan Kim (), Taeyoon Sung and Shang-Jin Wei

Journal of International Money and Finance, 2017, vol. 70, issue C, 406-432

Abstract: This study investigates whether foreign institutional investors can enhance shareholder value in emerging markets. We pay special attention to two dimensions of investor heterogeneity: whether investors declare themselves to be activists, and whether activists come from countries with strong traditions of investor activism (identified by the incidence of hostile takeovers in their respective home countries). First, using an event study approach with regard to announcements of block purchases by foreign institutional investors in Korea, we find that stock prices increase only when foreign institutional investors declare themselves to be activists (increasing on average by 3% over a 20-day window). Second, we find that positive stock price reactions are more pronounced when the activist investors come from source countries with strong traditions of investor activism (increasing on average by 7% over a 20-day window). Third, we find that target firms are more likely to reduce cash holdings, raise leverage ratios, and peg dividend payouts, stock repurchases, and CEO turnover more closely to changes in earnings, but only if foreign activists come from countries with strong traditions of activism. We address possible selection bias by propensity score matching.

Keywords: Foreign block investors; Activist investors; Corporate governance; Emerging markets (search for similar items in EconPapers)
JEL-codes: F21 G11 G15 G23 G32 G34 G35 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: The Diffusion of Corporate Governance to Emerging Markets: Evaluating Two Dimensions of Investor Heterogeneity (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:70:y:2017:i:c:p:406-432

DOI: 10.1016/j.jimonfin.2016.10.002

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