Determinants of R&D intensity and its impact on firm value in an innovative economy in which family business groups are dominant: The case of South Korea

Byung S. Min and Russell Smyth

No 25-15, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: We examine both the determinants of corporate research and development (R&D) intensity, and its impact on firm value, in Korea, a country in which family business groups are dominant and in which corporate-funded R&D intensity is one of the highest in the world. We find that growth opportunities, size of the firm and payment to executive board members have a positive effect on R&D intensity, while leverage has a negative effect on R&D intensity. When leverage is at an extremely high level, the relationship between growth opportunities and R&D intensity turns from positive to negative. The positive effect of firm size on R&D intensity is larger, the greater the number of subsidiaries the firm has, consistent with the firm engaging in cross-subsidisation. The positive effect of payments to executive board members on R&D intensity is smaller for chaebol affiliates than for stand-alone firms. Using instrument variables we find that R&D generates an increase in firm value.

Keywords: family business; R&D; innovative economy; firm value; chaebol (search for similar items in EconPapers)
Pages: 35 pages
Date: 2015-04
New Economics Papers: this item is included in nep-bec, nep-cse, nep-ino, nep-knm, nep-sbm and nep-tid
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