Abstract

This study examines which factors of financial information of KOSDAQ firms induce the investment of foreign investors. Numerous studies have examined this issue by exploring the relation between the foreign ownership and the cash dividend payment and/or capital investments of domestic firms. However, there has been no empirical study which examines which factors of financial information of KOSDAQ firms induce the investment of foreign investors. Foreign investors are perceived to have superior information and the superior ability of information analysis. Among financial factors, the paper pursues which factors are weighted heavily in determining the foreign investment. When examining the relationship between foreign investments and financial factors of domestic firms, there are also several statistical issues on the empirical methodology. The most prominent problem is the lead and lag relation between the foreign investment and some financial factors, such as dividend payments and capital expenditures. In this study, this problem is mitigated by carefully constructing samples according to the lead and lag relation between the foreign investment and financial factors. The study examines the inducement of foreign investment by using the probit and tobit analyses. The findings of the probit analyses suggest that variables indicating capital expenditures such as R&D and advertising expenditures, a variable for the growth opportunity measured by market value to book value of net assets, and the dividend ratio are statistically significant factors affecting the inducement of foreign investments on both samples. This paper also examines the inducement factors of foreign investments using the tobit analysis. The findings of the tobit analysis are similar to those of the probit analyses except R&D and advertising expenditure variables. This paper is the first to examine which financial factors affect the investment decision of foreign investors. The results presented in this paper suggests which financial factors are important for domestic firms, particularly SMEs, to attract foreign investments. For these aspects, this research has its own contribution to the existing literature.

Keywords

• Initial public offerings
• Financial characteristics
• Foreign investors
• Discriminant analysis
• Tobit analysis

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