Stock Market Opening and the Cost of Capital

Edited by Inseok Shin and Chang-gyun Park

in International Financial Issues in the Pacific Rim

Published by University of Chicago Press

Published in print August 2008 | ISBN: 9780226386829
Published online February 2013 | e-ISBN: 9780226387086 | DOI:
Stock Market Opening and the Cost of Capital

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This chapter uses firm level panel data to analyze the effects of increased foreign presence in the Korean stock market on dividend yield. It examines the trends that emerge when controlling for other factors and regressing the dividend yield on degrees of foreign ownership. The results show that the higher the degree of foreign ownership in a firm, the lower the dividend yield. The negative relationship between foreign ownership and the dividend yield is only significant during recent years when the Korea stock market has been fully opened. The finding that higher foreign ownership produces lower dividend yield is consistent with the hypothesis that market opening decreases the cost of capital.

Keywords: capital costs; Korean stock market; market opening; foreign investment; dividend yield; foreign ownership

Chapter.  8498 words.  Illustrated.

Subjects: Business and Management

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