Investment Horizons of Foreign Investors and Corporate Investment-Cash Flow Sensitivities

Kim, Sung Min; Jang, Yong Won

Korean Journal of Financial Studies 2014;43(5):785-810.
Published online December 31, 2014.

Sung Min Kim, Yong Won Jang

외국인투자자의 투자기간이 기업의 투자-현금흐름 민감도에 미치는 영향

김성민, 장용원

Abstract

This paper investigates whether investment horizons of foreign investors influence the sensitivity of the firms’ investment to internal cash flows. We argue that foreign investors’ monitoring need and incentive of the firm increases with their length of time invested. So long-term foreign investors mitigate asymmetric information and agency problems by their enhanced monitoring and thus lead to reduce investment-cash flow sensitivity. We find that investment-cash flow sensitivity does not decrease with foreign investors holdings. But with considering their investment horizons, we find investment-cash flow sensitivity decrease in the presence of foreign investors with long-term investment horizons and high ownerships. These empirical results are consistent with our argument that the effect of foreign investors on investment-cash flow sensitivity should take into account their investment horizons.

Key Words: 기업지배구조,모니터링,외국인투자자,투자기간,투자-현금흐름 민감도,Corporate Governance,Foreign Investors,Investment Horizon,Investment-Cash Flow Sensitivity,Monitoring