Ownership structure and the relationship between financial slack and R&D investments: Evidence from Korean Firms

Kim Hicheon, Kim Heechun, Peggy Lee

Research output: Contribution to journalArticle

159 Citations (Scopus)

Abstract

We use agency theory to examine the influence of ownership structure on the relationship between financial slack and R&D investments, highlighting how that relationship might differ depending on the identity of the owners, and their potentially different interests. In doing so, we extend the scope of agency theory by examining the principal-principal conflicts of interests that may exist among different types of owners. Using a sample of Korean manufacturing firms in R&D-intensive industries between 1998 and 2003, we find that financial slack has an inverted U-shaped relationship with R&D investments. Furthermore, that relationship varies depending on the presence of different types of owners. Family ownership positively moderates the relationship between financial slack and R&D investments, whereas domestic institutional investors and foreign investors negatively moderate that relationship. Our results show that distinguishing among different types of owners is instrumental in enhancing our understanding of the nature of the relationship between financial slack and R&D investments.

Original languageEnglish (US)
Pages (from-to)404-418
Number of pages15
JournalOrganization Science
Volume19
Issue number3
DOIs
StatePublished - May 1 2008

Fingerprint

Financial slack
Ownership structure
Industry
Owners
Agency theory
Manufacturing firms
Inverted-U
Principal-principal conflicts
Conflict of interest
Institutional investors
Foreign investors
Domestic investment
Family ownership

Keywords

  • Agency theory
  • Organizational slack
  • Ownership structure
  • R&D investments

ASJC Scopus subject areas

  • Strategy and Management
  • Organizational Behavior and Human Resource Management
  • Management of Technology and Innovation

Cite this

Ownership structure and the relationship between financial slack and R&D investments : Evidence from Korean Firms. / Hicheon, Kim; Heechun, Kim; Lee, Peggy.

In: Organization Science, Vol. 19, No. 3, 01.05.2008, p. 404-418.

Research output: Contribution to journalArticle

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