The purpose of this paper is to investigate the relationship between foreign ownership and firm value. Based on the sample of 3,398 firm-year observations in the period of 2000 to 2007, we find evidence that foreign ownership is positively associated with firm value measured by the market-to-book ratio. In addition, we employ simultaneous equation system where both foreign ownership and firm value are treated as endogenous variables. Simultaneous regression models indicate that the foreign ownership affects firm value, but not vice versa. The positive effects of foreign ownership on firm value result from monitoring and disciplining roles played by foreign investors. Many Korean firms have been run by an owner-manager while monitoring provided by institutional equity holders has been limited. Therefore, Korean firms are expected to suffer from more severe agency costs caused by the conflicts of interest between owner-managers and outside investors. Our empirical results support the notion that foreign investors play an important role in enhancing corporate transparency and improving corporate governance.