Effects of Foreign Investor Ownership on a Firm’s Innovation Process: A Focus on Business-Group Affiliation in Korea

Effects of Foreign Investor Ownership on a Firm’s Innovation Process: A Focus on Business-Group Affiliation in Korea

Purpose - This study investigates the effects of foreign investor ownership on firm innovation and the different stages of the firm innovation process for business group affiliation (affiliated firms) and non￾affiliated firms. Design/methodology - Research and development (R&D) intensity is used as a proxy for firm inno￾vation. We use a sample of 7,655 firm-year observations of Korean listed firms from 2001 to 2015. To identify the distinct features of business group affiliation and how foreign investor ownership affects firm innovation, we divide the sample into affiliated and non-affiliated firms. Moreover, we classify total R&D expenditures as research and development expenditures. Findings - This study finds a positive relationship between foreign investor ownership and innovation in non-affiliated firms. However, the foreign investor ownership’s role in facilitating firm innovation does not influence business group affiliation. Moreover, the results show that foreign investor ownership encourages firms to increase research expenditures, which is the amount spent in the early stages of a firm’s R&D process. Originality/value - Existing studies have overlooked the distinct features of business group affiliation and the different characteristics of research and development expenditures. Thus, this study considers the distinct features of business group affiliation and investigates how foreign investor ownership affects different stages of R&D activities.