Financialization of South Korean non-financial firms: an empirical analysis of the impacts on firms’ real and research and development investments

Yerin Yu and Jung-In Jo

Journal of Post Keynesian Economics, 2022, vol. 45, issue 2, 184-209

Abstract: This study explores financialization’s effects on corporate innovation using data on 711 firms taken from the KIS-Value database (1994–2019) and the generalized method of moments (GMM) model. Scholars warn that aiming solely to maximize shareholders’ interests and short-term financial investments places non-financial firms’ entrepreneurship at risk. Long-term R&D and real investments decline as a result, leading to stagnant growth. This study investigates whether empirical findings from the US and the UK, where financialization negatively affects corporations’ real and R&D investments, apply to the South Korean market. We find that the financialization of South Korean non-financial firms has damaged both real and R&D investments. The first channel of financialization, increased financial investments, reduces real investments and R&D spending. Furthermore, the second channel of financialization, profit-sharing, reduces corporate innovation. The more that South Korean non-financial firms adhere to dividend payments and stock buybacks, the greater the negative impacts on real and R&D investments are.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:mes:postke:v:45:y:2022:i:2:p:184-209

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DOI: 10.1080/01603477.2022.2027786

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