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The Signals Outside Directors Send to Foreign Investors: Evidence from Korea
Author(s) -
Rhee Mooweon,
Lee JiHwan
Publication year - 2008
Publication title -
corporate governance: an international review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.866
H-Index - 85
eISSN - 1467-8683
pISSN - 0964-8410
DOI - 10.1111/j.1467-8683.2008.00663.x
Subject(s) - corporate governance , business , composition (language) , accounting , control (management) , sample (material) , perspective (graphical) , panel data , marketing , empirical research , public relations , economics , political science , management , finance , linguistics , philosophy , chemistry , chromatography , epistemology , artificial intelligence , computer science , econometrics
Manuscript Type: Empirical Research Question/Issue: This study explores a signaling role of the demographic composition of a firm's outside director by examining how the composition influences the growth of foreigners' investment in the firm. Research Findings/Insights: Using archival data from a panel sample of 96 large Korean firms between 2000 and 2003, our analysis shows that the growth of foreign ownership is positively affected if a higher proportion of outside directors hold advanced foreign degrees, if a higher proportion of outside directors have former or current affiliations with governmental organizations, or if a higher proportion of outside directors have job experience in the same industry. Theoretical/Academic Implications: Our theoretical perspective and supportive findings suggest that the role of outside directors is not confined to implementing the tasks stipulated as a corporate governance mechanism; they also can be signals that inform a market audience (foreign investors in our study) of the extent to which outside directors may provide a firm with a knowledge base, social status, and decision control. Practitioner/Policy Implications: This study suggests several practical implications, prompting growing interest in the role of outside directors as one of the most effective vehicles for improving corporate governance and symbolic management. In addition, it offers insights to policy makers interested in establishing and updating guidelines that inform firms of desirable board composition according to their strategic demands.