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

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.