Internal governance mechanisms and managerial decision on foreign direct investment in Korean firms

Internal governance mechanisms affect the time horizon of foreign direct investment decisions differently because of their different objectives and characteristics. In this study, we empirically tested the relationship between internal governance mechanisms and the time horizon of foreign direct investment. Internal governance mechanisms for monitoring exert pressure on the short-term performance on a manager, causing the manager to focus on short-term perspective investment. However, internal governance mechanisms for interest alignment motivate a manager to invest in the foreign market with a long-term perspective. Outside directors and foreign ownership threaten the job and compensation of a manager. Thus, a manager cannot do anything but pursue a visible and predictable performance. However, a stock option has a structure of limited loss and unlimited gain, and it can be exercised even after resignation. Therefore, a manager with a stock option is motivated to focus on risky and long-term investments.