Innovation and ownership structure: Empirical evidence from korean firms

Abstract

Manuscript type: Empirical data

Research Question/Issue: This paper examines the impact of ownership structures of Korean firms on the business environment by examining the shareholder’s ownership proportions.

Research Findings/Results: Empirical results show that the large proportion rates of shareholders are negative effect to the innovation activity of firm performance, indicating that these firms operates less risk-taking strategy through the corporate governance law of cash flow right and control right by the effect of German civil law based in East Asia.

Theoretical Implications: “New combination” is high risk and high return strategy of product innovation for large shareholders. Alternatively, most Korean firms chose a low-risk low-price approach to economic scale in innovation, demonstrating that large shareholders prefer process innovation.

Practical Implication: The corporate governance of Korean chaebols is tending toward strong management entrenchment in the coming decade, as the passive innovation activity preferred by large shareholders will result in an increase in process innovation decisions to pursue imitation. This will create price wars targeting the first mover of product innovation. Large shareholders may alternatively rely on the M&A market to find new technologies from venture capitalists and consulting analysts. Alternatively, large shareholders may spread across newly affiliated companies, a sustainable strategy for them to reduce failure from an affiliated company acquired through M&A activities.