Foreign Investors and the Peer Effects to Payout Policies

Abstract

This research studies the influence of foreign investors on payout policies and the peer effect of dividends. We show that peer effects on dividend policies exist in Korea using an instrumental variable approach. Additionally, our results suggest that foreign investor activities intensify the peer effect on dividend policies. Firms with a higher net purchase by foreign investors are more heavily scrutinized to reduce information asymmetry between managers and shareholders. This monitoring behavior affects dividend choices among firms and the responsiveness to peer influence. Further, the impact of foreign investors is prominent for dividend increases but not for decreases.