Do domestic or foreign institutional investors matter? The case of firm information asymmetry in Korea

We examine the impact of institutional investors on the effectiveness of firms' governance in Korea, as evidenced by information asymmetry. We find that lagged institutional blockholdings are negatively related to future information asymmetry measures, primarily through long-term, domestic institutions. We attribute this finding to domestic institutions' proximity advantages in local markets. Our findings imply that policy initiatives aiming to resolve firm-level agency issues in emerging markets may maximize their effectiveness by promoting the active participation of domestic institutions. •We examine the role of institutional blockholders in shaping information asymmetry in a unique institutional context.•Large and long-term domestic blockholders effectively mitigate firm-level information asymmetry in Korea.•Our findings suggest that an influx of international capital is not sufficient for effective corporate governance.