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

Woochan Kim, Taeyoon Sung, Shang Jin Wei

Research output: Contribution to journalArticle

4 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)406-432
Number of pages27
JournalJournal of International Money and Finance
Volume70
DOIs
Publication statusPublished - 2017 Feb 1

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Investors
Corporate governance
Emerging markets
Institutional investors
Activism
Stock prices
Home country
Leverage ratio
Shareholder value
Cash holdings
Stock price reaction
Hostile takeovers
Propensity score matching
CEO turnover
Selection bias
Purchase
Stock repurchases
Announcement
Korea
Event study

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

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The diffusion of corporate governance to emerging markets : Evaluating two dimensions of investor heterogeneity. / Kim, Woochan; Sung, Taeyoon; Wei, Shang Jin.

In: Journal of International Money and Finance, Vol. 70, 01.02.2017, p. 406-432.

Research output: Contribution to journalArticle

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