Your browser does not support the PubReader view.
Go to this page to see a list of supporting browsers.
Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 25, No. 1, pp.89-110
ISSN: 1225-0279 (Print)
Print publication date 29 Feb 2012
Received 28 Apr 2011 Revised 22 Jun 2011 Accepted 26 Jun 2011

The Effect of Ownership Concentration on R&D Decisions in Korean Firms

Sanghoon Lee
Full-time Tenure-track Lecturer, Department of Economics, Hannam University, 133 Ojeong-dong, Daedeok-gu, Daejeon 306-791, South Korea, Tel: +82-42-629-7602, Fax: +82-42-672-7602 sanghoonlee@hannam.ac.kr

JEL Classification: D22, G30, G32

Abstract

The current study examines the effect of ownership concentration on R&D investment by investigating a large panel data set of Korean listed firms. Theoretically, concentrated ownership structure can be an alternative to mitigate the agency problem caused by the separation of ownership and control in a dispersed ownership structure. However, whether ownership concentration positively affects firm R&D decisions is not obvious due to the contrasting effects of large shareholders: risk averseness and long-term orientation. The present study uses several econometric techniques, fixed effects FGLS regression, dynamic GMM regression, and subsample regressions, and shows that the positive effect of ownership concentration on R&D is confirmed in Korea. A non-linear relation between ownership concentration and investment is not significant, and neither are the effects of foreign investors and institutional investors. The results of the subsample regressions indicate that the positive effect of ownership concentration is significant in small firms, R&D intensive firms, and non-chaebol firms.

Keywords:

Ownership concentration, R&D, Panel data

References

  • Aboody, David, and Lev, Baruch. “Information Asymmetry, R&D, and Insider Gains.” Journal of Finance 55 (No. 6 2000): 2747-66. [https://doi.org/10.1111/0022-1082.00305]
  • Alchian, Armen A., and Demsetz, Harold. “Production, Information Costs, and Economic Organization.” American Economic Review 62 (No. 5 1972): 777-95.
  • Allayannis, George, and Mozumdar, Abon. “The Impact of Negative Cash Flow and Influential Observations on Investment-Cash Flow Sensitivity Estimates.” Journal of Banking and Finance 28 (No. 5 2004): 901-30. [https://doi.org/10.1016/S0378-4266(03)00114-6]
  • Amihud, Yakov, and Lev, Baruch. “Risk Reduction as a Managerial Motive for Conglomerate Mergers.” Bell Journal of Economics 12 (No. 2 1981): 605-17. [https://doi.org/10.2307/3003575]
  • Arellano, Manuel, and Bond, Stephen R. “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations.” Review of Economic Studies 58 (No. 2 1991): 277-97. [https://doi.org/10.2307/2297968]
  • Baysinger, Barry D., Kosnick, Rita D., and Turk, Thomas A. “Effects of Board and Ownership Structure on Corporate R&D Strategy.” Academy of Management Journal 34 (No. 1 1991): 205-14. [https://doi.org/10.2307/256308]
  • Berle, Adolf, and Means, Gardiner. The Modern Corporation and Private Property. N.Y.: Macmillan, 1932.
  • Boyer, Robert, and Freyssenet, Michel. “Globalization but Still a Large Diversity of Productive Models and Corporate Governance Styles.” Seoul Journal of Economics 15 (No. 2 2002): 149-91.
  • Burkart, Mikr, Gromb, Denis, and Panunzi, Fausto. “Large Shareholders, Monitoring, and the Value of the Firm.” Quarterly Journal of Economics 112 (No. 3 1997): 693-728. [https://doi.org/10.1162/003355397555325]
  • Carpenter, Robert E., and Petersen, Bruce C. “Capital Market Imperfections, High-Tech Investment, and New Equity Financing.” Economic Journal 112 (No. 477 2002): F54-72. [https://doi.org/10.1111/1468-0297.00683]
  • Cleary, Sean, Povel, Paul, and Raith, Michael. “The U-Shaped Investment Curve: Theory and Evidence.” Journal of Financial and Quantitative Analysis 42 (No. 1 2007): 1-40. [https://doi.org/10.1017/S0022109000002179]
  • Croissant, Yves, and Millo, Giovanni. “Panel Data Econometrics in R: The plm Package.” Journal of Statistical Software 27 (No. 2 2008): 1-43. [https://doi.org/10.18637/jss.v027.i02]
  • Denis, Diane K., and McConnell, John J. “International Corporate Governance.” Journal of Financial and Quantitative Analysis 38 (No. 1 2003): 1-36. [https://doi.org/10.2307/4126762]
  • Denison, Daniel R., and Mishra, Aneil K. “Toward a Theory of Organizational Culture and Effectiveness.” Organization Science 6 (No. 2 1995): 204-23. [https://doi.org/10.1287/orsc.6.2.204]
  • Faccio, Mara, Marchica, Maria-Teresa, and Mura, Roberto. “Large Shareholder Diversification and Corporate Risk-Taking.” Review of Financial Studies 24 (No. 11 2011): 3601-41. [https://doi.org/10.1093/rfs/hhr065]
  • Fazzari, Steven M., Hubbard, R. G., and Petersen, Bruce C. “Financing Constraints and Corporate Investment.” Brooking Papers on Economics Activity 1988 (No. 1 1988): 141-206. [https://doi.org/10.2307/2534426]
  • Francis, Jennifer, and Smith, Abbie. “Agency Costs and Innovation: Some Empirical Evidence.” Journal of Accounting and Economics 19 (Nos. 2-3 1995): 383-409. [https://doi.org/10.1016/0165-4101(94)00389-M]
  • Goergen, Marc, and Renneboog, Luc. “Investment Policy, Internal Financing and Ownership Concentration in the UK.” Journal of Corporate Finance 7 (No. 3 2001): 257-84. [https://doi.org/10.1016/S0929-1199(01)00022-0]
  • Guellec, Dominique, and van Pottelsberghe de la Potterie, Bruno. R&D and Productivity Growth: Panel Data Analysis of 16 OECD Countries. OECD Working Paper 2001/3, 2001.
  • Hadlock, Charles J. “Ownership, Liquidity, and Investment.” RAND Journal of Economics 29 (No. 3 1998): 487-508. [https://doi.org/10.2307/2556101]
  • Hall, Bronwyn H. “The Financing of Research and Development.” Oxford Review of Economic Policy 18 (No. 1 2002): 35-51. [https://doi.org/10.1093/oxrep/18.1.35]
  • Hannan, Michael T., and Freeman, John. “Structural Inertia and Organizational Change.” American Sociological Review 49 (No. 2 1984): 149-64. [https://doi.org/10.2307/2095567]
  • Hansen, Gary S., and Hill, Charles W. L. “Are Institutional Investor Myopic? A Time-series Study of Four Technology-driven Industries.” Strategic Management Journal 12 (No. 1 1991): 1-16. [https://doi.org/10.1002/smj.4250120102]
  • Hirshman, Albert O. Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States. Cambridge, M.A.: Harvard University Press, 1970.
  • John, Kose, Litov, Lubomir, and Yeung, Bernard. “Corporate Governance and Risk-Taking.” Journal of Finance 63 (No. 4 2008): 1679-728. [https://doi.org/10.1111/j.1540-6261.2008.01372.x]
  • La Porta, Rafael, Lopez-de-Silanes, Florencio, and Shleifer, Andrei. “Corporate Ownership around the World.” Journal of Finance 54 (No. 2 1999): 471-517. [https://doi.org/10.1111/0022-1082.00115]
  • Lee, Peggy M. “A Comparison of Ownership Structures and Innovations of US and Japanese Firms.” Managerial and Decision Economics 26 (No.1 2005): 39-50. [https://doi.org/10.1002/mde.1188]
  • Lee, Peggy M., and O'Neill, Hugh M. “Ownership Structures and R&D Investments of U.S. and Japanese Firms: Agency and Stewardship Perspectives.” Academy of Management Journal 46 (No. 2 2003): 212-25. [https://doi.org/10.2307/30040615]
  • Lee, Sanghoon. “Ownership Structure and Financial Performance: Evidence from Panel Data of South Korea.” Corporate Ownership and Control 6 (No. 2 2008): 254-67. [https://doi.org/10.22495/cocv6i2c2p1]
  • Munari, Federico, Oriani, Raffaele, and Sobrero, Maurizio. “The Effect of Owner Identity and External Governance Systems on R&D Investments: A Study of Western European Firms.” Research Policy 39 (No. 8 2010): 1093-104. [https://doi.org/10.1016/j.respol.2010.05.004]
  • OECD. Government R&D Funding and Company Behavior: Measuring Behavioral Additionality. 2006.
  • Santarelli, Enrico. “Asset Specificity, R&D Financing, and the Signalling Properties of the Firm's Financial Structure.” Economics of Innovation and New Technology 1 (No. 4 1991): 279-94. [https://doi.org/10.1080/10438599100000008]
  • Schiantarelli, Fabio. “Financial Constraints and Investment: Methodological Issues and International Evidence.” Oxford Review Economic Policy 12 (No. 2 1996): 70-89. [https://doi.org/10.1093/oxrep/12.2.70]
  • Schumpeter, Joseph A. Capitalism, Socialism and Democracy. N.Y.: Harper, 1942.
  • Shleifer, Andrei, and Vishny, Robert W. “Large Shareholders and Corporate Control.” Journal of Political Economy 94 (No. 3 1986): 461-88. [https://doi.org/10.1086/261385]
  • Singh, Ajit. “Corporate Governance, the Big Business Groups and the G-7 Reform Agenda: A Critical Analysis.” Seoul Journal of Economics 15 (No. 2 2002): 103-48.