The effect of foreign shareholder ownership on labor investment efficiency: Evidence from South Korea

초록

This study investigates whether higher foreign shareholder equity improves labor investment efficiency in South Korean publicly listed firms. Labor investment, like capital investment, plays a crucial role in shaping corporate performance and value. It involves continuous cash outflows and poses challenges during restructuring, such as downsizing. Foreign shareholders are known to take on a monitoring role in Korean firms, potentially leading to more efficient labor investment decisions. To assess the impact of foreign shareholder involvement on labor investment efficiency, regression analysis was conducted using data from 2,699 firm-year observations from firms listed on the Korean stock exchange during the pre-pandemic period (2016–2019). Labor investment inefficiency was measured as the absolute difference between actual and expected labor investment levels, considering both over- and under-investment as inefficiencies. The analysis revealed a significant negative relationship between foreign ownership and labor investment inefficiency. Specifically, a regression coefficient of –2.220 (p-value: 0.027) indicates that higher foreign shareholder equity is associated with lower labor investment inefficiency. Further analysis, separating the sample into over-investment and under-investment groups, found that the coefficient for foreign ownership in the under-investment group was –1.920 (p-value: 0.055), significant at the 10% level. These findings suggest that foreign shareholders, through their monitoring role, help reduce information asymmetry, decreasing inefficiencies in labor investment decisions. © Soo-Joon Chae, Haeyoung Ryu, 2025.

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