Product market competition and a firm’s R&D investment: New evidence from Korea
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DOIhttp://dx.doi.org/10.21511/imfi.19(1).2022.22
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Article InfoVolume 19 2022, Issue #1, pp. 287-299
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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)
- Keywords
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JEL Classification (Paper profile tab)M40, G30, G34, L10
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References50
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Tables7
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Figures0
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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
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