Ownership Structure and the Relationship Between Financial Slack and R&D Investments: Evidence from Korean Firms

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.

Influência da folga financeira no retorno por ações em empresas brasileiras e chilenas

“…Trata-se, assim, de uma sobra de recursos que as empresas podem utilizar de forma discricionária, tanto para combater as ameaças quanto para explorar as oportunidades (DANIEL ET AL, 2004;CLEARY, 2005;KIM;KIM;LEE, 2008).…”

“…Sob essa perspectiva, alguns estudos analisaram a relação entre folga financeira e: desempenho (DANIEL et al, 2004), estrutura de capital (KIM; KIM;LEE, 2008), endividamento Catia Heinzen, Filipy Furtado Sell e Tarcisio Pedro Silva (CAMPOS;NAKAMURA, 2013), retorno por ações como informações preditivas de retornos (KIM; RITTER, 1998), rentabilidade média de ações (COSTA JR;NEVES, 2000) e criação e destruição de valor de empresas (SILVA; FERREIRA; CALEGARIO, 2009). No entanto, não foram encontrados estudos anteriores que analisaram e relacionaram a folga financeira com o retorno por ações.…”

Organizational Slack Effects on Innovation: The Moderating Roles of Ceo Tenure and Compensation

“…Only firms with considerable financial slack and commitment to innovation will take on uncertain multiyear projects with opportunity costs and capital investment requirements such as these. Financial slack, therefore, offers a safety net that enables these firms to pursue new ideas and projects with longer investment horizons and less certain outcomes (Kim et al 2008). Not only does financial slack insulate against cash flow volatility, it also maintains R&D investment through good times and bad (O'Brien 2003).…”

The Effect of Innovativeness on the Relationship Between Diversification and Slack

“…For example, taking a positive view, accounting "behaviorists" have suggested the use of idle resources that may act as a buffer from environmental pressures (Martinez and Artz, 2006;Voss et al 2008), or as a shock absorber (Hendrick 2006;Mellahi and Wilkinsion, 2010), and as a cushion to engage in risk taking/innovative behavior (Herold et al, 2006;Love & Nohria, 2005). These "idle resources" are, therefore, important in providing organizations capabilities to act in ways that are not possible for other organizations poorer in resources (Kim et al 2008). Natividad (2012) and George (2005) maintained that the presence of slack can be used as an enactment of strategies.…”