Product market competition and a firm’s R&D investment: New evidence from Korea

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This study aims to examine the effect of product market competition on a firm’s investments in research and development (R&D) and how this effect varies depending on the firm’s internal corporate governance. This study employs the regression method to analyze the association between product market competition and a firm’s R&D investment. Since product market competition works effectively as an external corporate governance mechanism that reduces agency problems and information asymmetry, this study hypothesizes that a competitive product market promotes R&D investments. Using 11,560 firm-year observations of Korean listed firms for 2001–2020, this study finds a positive association between product market competition and R&D investment. The result also shows this association is more pronounced for firms with weak internal corporate governance mechanisms. Furthermore, additional analysis shows that the effect of product market competition on a firm’s R&D investment is stronger for firms in the low-tech industry. This study provides new insights on the inconclusive association between product market competition and a firm’s R&D investment and practical implications that product market competition drives firms to invest in R&D.

Acknowledgements
This work was supported by the Gachon University research fund of 2021.(GCU-202103550001)

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    • Table 1. Descriptive statistics
    • Table 2. Correlations (p-values below)
    • Table 3. Product market competition and a firm’s R&D investments
    • Table 4. The effect of internal corporate governance on the association between product market competition and R&D investments
    • Table 5. The effect of product market competition on a firm’s R&D investments based on the industry type
    • Table 6. Robustness test: Alternative measure of product market competition (HHI based on a firm’s total assets)
    • Table A1. Variable definitions
    • Conceptualization
      Ilhang Shin, Hansol Lee
    • Data curation
      Ilhang Shin
    • Formal Analysis
      Ilhang Shin
    • Funding acquisition
      Ilhang Shin
    • Methodology
      Ilhang Shin
    • Investigation
      Hansol Lee
    • Writing – original draft
      Hansol Lee
    • Writing – review & editing
      Hansol Lee