Asymmetry in R&D Investments of Chaebol Firms
Asian Tax Journal Vol. 19 No. 2 (2018), pp. 209-230
Abstract
R&D investment is critical for growth, survival and success of the firm since it can be a source of a firm’s innovation and competitive advantage. Due the recent technological revolution, many Korean firms have increased the ratio of R&D expenditure to sales revenue and, the growing importance of R&D investments motivates us to investigate how firms manage and adjust R&D expenditure with respect to changes in sales. We use asymmetric cost model to find whether there are asymmetric frictions in making adjustments on R&D investments. Meanwhile, the unique feature among Korean firms is the existence of a large business group or a chaebol and, the different traits of chaebol and non－chaebol firms may drive different cost behavior. Therefore, the research objective of this paper is to investigate whether chaebol and non－chaebol firms in Korea exhibit different R&D cost behavior. Based on a dataset of Korean listed firms from 2001 to 2014, we find that the degree of R&D cost stickiness is on average, greater in chaebol firms than in non－chaebol firms. Further, we find that the R&D cost stickiness in chaebol firms is more pronounced in post－global financial crisis in 2008. Chaebol firms face political costs which pressure them to maintain the certain level of investments by the government or media and thus, such costs may prevent them from reducing R&D investments in response to sales decreases or economic downturns thus, exhibit stickiness. To further extent, chaebol firms may have internal resources, which allow them to maintain their level of R&D investments. Our findings enhance the understandings of how chaebol firms manage R&D investments in response to negative shocks such as sales declines and economic downturns compared to non－chaebol firms.
Keywords
- Business group
- chaebol
- R&D investments asymmetry
- R&D cost stickiness1
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