In this paper, we have made an empirical analysis on the impact of foreign shares on a firm's dividend increase. As to the issue, Kyung-seo Park(2004) reports that the impact foreign investors have on the dividends pattern of listed companies is very limited. However, Hyun-soo Park (2004) insists that shares held by foreign investors have significantly positive effect on the dividend pattern and that foreign investors' participation generally pushes up the dividend payments while pulling down investments made in facilities no matter which industry a company is in. As an extension of the previous research, this paper has further looked into whether the proportion of foreign shares has an actual impact on company dividends. Compared with the preceding studies, this study has the following features. First, the proportion of foreign institutional investors holding more than 5% of a company's shares in addition to the total amount of the foreign investors' ownership has been used as one of the main variables. Second, the concept of the dividends has been expanded by including stock repurchases and cancellations of shares as well as cash dividends in order to consider all the profit that stockholders can potentially earn. The sample of the study is comprised of listed manufacturing companies whose foreign shares take up more than 5% for the last three consecutive years (2001-2003) and whose account settlement is executed in December. Major findings of the study are as follows: First, the amount of foreign shares alone has little impact in raising dividends. However, foreign investors with more than 5% of a company's shares can exert significant impact on its dividend increase. In addition, those companies whose majority shareholders are foreign investors tend to pay higher dividends than others whose majority shareholders are domestic investors. According to our analysis based on the expanded definition of the dividends including not only cash dividends but also treasury stocks canceled and repurchased, foreign investors' share holding has positive impact on the increase in the dividend and cancellation of shares, while the stock repurchases have minimal impact. Also the cancellation of shares brings positive impact to the stockholders' wealth while the stocks repurchased for general purposes can be disposed of in more than six months after the repurchase. This seems to draw different levels of interest from foreign investors. Based on the time analysis, we conclude that the influence of foreign investors' ownership grew more powerful and significant during the fiscal years of 2001, 2002 and 2003. This implies that the demand of foreign investors for more dividends is growing over time. These results described thus far could be interpreted as mere temporary pattern as foreign investors happened to make investments in those companies who pay high dividends during the designated years. In order to ascertain the validity of our study results, we have made additional analysis. The result of the subsequent study presented no substantial evidence for foreign investors' tendency to make investments in high-dividend generating stocks while there is a significant positive relation between the increase in the share-holding ratio of foreign investors and the increase in the dividends. The overall results of the analysis indicate that the foreign investors favor blue chip stocks capable of paying high dividends and, accordingly, they apply their pressure to the managements to payout higher dividends.
