We investigate whether the introduction of a mandated independent director system affected firm ownership structure in South Korea, where the governance system changed significantly after the 1997 financial crisis. Results indicate that foreign investors place considerable value on the appointment of independent directors. An increase in foreign ownership, associated with an improvement in the corporate governance system, occurred after controlling home bias and firm size. Further, the positive effect of an outside director system on foreign ownership was greater for independent firms than it was for conglomerates (chaebols) and their affiliates. The results are robust under a range of endogeneity tests.