Role of Foreign and Domestic Institutional Investors in Corporate Sustainability: Focusing on R&D Investment

Ilhang Shin and Sorah Park
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Ilhang Shin: College of Business, Gachon University, Seongnam-si, Gyeonggi-do 13120, Korea
Sorah Park: Ewha School of Business, Ewha Womans University, Seoul 03760, Korea

Sustainability, 2020, vol. 12, issue 20, 1-13

Abstract: This paper examines the effects of ownership by foreign and domestic institutional investors on corporate sustainability by focusing on the level of research and development (R&D) investment. Long-term investment in R&D is crucial for companies that seek to generate sustainable growth. Ordinary least-squares regression is performed on a sample of Korean listed companies. The main test with both foreign and domestic institutional ownership is based on a study period from 2001 to 2004. The results indicate that firms with higher levels of foreign institutional ownership exhibit greater levels of corporate R&D activities, while the ownership by domestic institutions has no significant influence on firms’ R&D investment. An additional test with foreign institutional ownership data is based on an extended study period from 2001 to 2014, and shows that foreign institutional ownership is positively related to firms’ R&D investment. This result survives the two-stage instrumental variable approach used to address endogeneity factors in foreign institutional ownership. Taken together, these findings suggest that foreign institutions can effectively monitor managerial myopia and promote corporate innovations.

Keywords: institutional investors; foreign institutions; domestic institutions; R& D; innovation; sustainability (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:12:y:2020:i:20:p:8754-:d:432670

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