The effect of related party transactions on R&D investment: Evidence from Korea

  • 217 Views
  • 40 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

This study aims to investigate the relationship between related party transactions and a firm’s investment in research and development (R&D), as well as the moderating effect of a firm’s financial health on such a relationship. The study applies a fixed-effect panel regression model with a sample of 13,619 Korean listed firms for the period from 2001 to 2020. The results indicate that related party transactions significantly and positively influence a firm’s R&D investment at the 1% level for the study period. Specifically, when related party transactions are divided into operating and non-operating, the results show that only non-operating related party transactions significantly and positively affect firms’ investment in R&D. Moreover, findings report that the effect of related party transactions is stronger for firms with financial distress, lower cash holdings, and in the high-tech industry. The results imply that related party transactions promote a firm’s R&D investment, which is one of the primary business investments that create a firm’s competitive advantage and value. Moreover, the results propose that related party transactions should be carefully evaluated when accessing the firm’s investment behavior.

view full abstract hide full abstract
    • Table 1. Descriptive statistics
    • Table 2. Correlations
    • Table 3. Relate party transactions and firm R&D investments
    • Table 4. The effect of RPTs on a firm’s R&D investments based on the firm’s financial health
    • Table 5. Effect of RPTs on firm’s R&D investments based on the firm’s level of cash holdings
    • Table 6. Effect of RPTs on firm’s R&D investments based on the industry type
    • Table 7. Robustness test: Changes in RPTs and changes in the firm’s R&D investments
    • 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