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International Financial Issues in the Pacific RimGlobal Imbalances, Financial Liberalization, and Exchange Rate Policy$
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Takatoshi Ito and Andrew K. Rose

Print publication date: 2008

Print ISBN-13: 9780226386829

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226387086.001.0001

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Stock Market Opening and the Cost of Capital

Stock Market Opening and the Cost of Capital

The Case of Korea

(p.391) 12 Stock Market Opening and the Cost of Capital
International Financial Issues in the Pacific Rim
Inseok Shin, Chang-gyun Park
University of Chicago Press

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

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