The effect of related party transactions on R&D investment: Evidence from Korea
-
Received September 17, 2022;Accepted October 28, 2022;Published November 4, 2022
-
Author(s)Link to ORCID Index: https://orcid.org/0000-0003-1221-4519Link to ORCID Index: https://orcid.org/0000-0001-6776-410X
-
DOIhttp://dx.doi.org/10.21511/imfi.19(4).2022.08
-
Article InfoVolume 19 2022, Issue #4, pp. 99-112
- TO CITE АНОТАЦІЯ
-
Cited by2 articlesJournal title: JOURNAL OF INTERNATIONAL STUDIESArticle title: Business – education collaboration in R&D investment: Analysis of development gaps and critical points using MAR-splinesDOI: 10.14254/2071-8330.2023/16-2/3Volume: 16 / Issue: 2 / First page: 57 / Year: 2023Contributors: Anastasiia Samoilikova, Jaroslaw Korpysa, Tetiana Vasylieva, Bálint FilepJournal title: Scientific Bulletin of Mukachevo State University Series “Economics”Article title: Impact of leasing transactions on business development in KyrgyzstanDOI: 10.52566/msu-econ3.2024.21Volume: 11 / Issue: 3 / First page: 21 / Year: 2024Contributors: Altynbek Bekmuratov, Inabarkan Myrzaibraimova, Kanjarbek Mamashov, Bektur Raimberdiev, Dilfuza Tookeeva
- 326 Views
-
58 Downloads
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.
- Keywords
-
JEL Classification (Paper profile tab)D23, E22, O32
-
References50
-
Tables8
-
Figures0
-
- 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
-
- AlHares, A. (2020). Corporate governance mechanisms and R&D intensity in OECD courtiers. Corporate Governance: The International Journal of Business in Society, 20(5), 863-885.
- Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The Journal of Finance, 23(4), 589-609.
- Baldi, G., & Bodmer, A. (2018). R&D investments and corporate cash holdings. Economics of Innovation and New Technology, 27(7), 594-610.
- Beasley, M. S., Hermanson, D. R., Carcello, J. V., & Neal, T. L. (2010). Fraudulent financial reporting: 1998-2007: An analysis of US public companies. Association Sections, Division, Boards, Teams, 453.
- Belenzon, S., & Berkovitz, T. (2010). Innovation in business groups. Management Science, 56(3), 519-535.
- Berkman, H., Cole, R. A., & Fu, L. J. (2009). Expropriation through loan guarantees to related parties: Evidence from China. Journal of Banking & Finance, 33(1), 141-156.
- Bhagat, S., & Welch, I. (1995). Corporate research & development investments international comparisons. Journal of Accounting and Economics, 19(2-3), 443-470.
- Chang, S. J., & Hong, J. (2000). Economic performance of group-affiliated companies in Korea: Intragroup resource sharing and internal business transactions. Academy of Management Journal, 43(3), 429-448.
- Chen, J. J., Cheng, P., & Xiao, X. (2011). Related party transactions as a source of earnings management. Applied Financial Economics, 21(3), 165-181.
- Chen, B., & Lee, K. S. (2018). Cash Flow, R&D Investment and Profitability: Evidence from Chinese High-Tech and Other Industrial Firms. Journal of International Trade & Commerce, 14(2), 51-65.
- Cheung, Y. L., Qi, Y., Rau, P. R., & Stouraitis, A. (2009). Buy high, sell low: How listed firms price asset transfers in related party transactions. Journal of Banking & Finance, 33(5), 914-924.
- Cho, J., & Kim, S. (2011). Related party transactions and over-investment. Korean International Accounting Review, 48, 381-404.
- Fan, J. P., Jin, L., & Zheng, G. (2008). Internal capital market in emerging markets: expropriation and mitigating financing constraints. The Chinese University of Hong Kong.
- Geroski, P. A., & Pomroy, R. (1990). Innovation and the evolution of market structure. The Journal of Industrial Economics, 299-314.
- Gonenc, H. (2009). How do business group firms utilize internal capital markets? International Journal of Managerial Finance, 5(4), 360-375.
- Gordon, E. A., & Henry, E. (2005). Related party transactions and earnings management (Working Paper).
- Habib, A., Bhuiyan, B. U., & Islam, A. (2013). Financial distress, earnings management and market pricing of accruals during the global financial crisis. Managerial Finance, 39(2), 155-180.
- Hall, B. H., & Lerner, J. (2010). The financing of R&D and innovation. In Handbook of the Economics of Innovation (Vol. 1, pp. 609-639). North-Holland.
- Haji-Abdullah, N. M., & Wan-Hussin, W. N. (2015). Related party transactions, audit committees and real earnings management: The moderating impact of family ownership. Advanced Science Letters, 21(6), 2033-2037.
- Harford, J., Klasa, S., & Maxwell, W. F. (2014). Refinancing risk and cash holdings. The Journal of Finance, 69(3), 975-1012.
- He, J., Mao, X., Rui, O. M., & Zha, X. (2013). Business groups in China. Journal of Corporate Finance, 22, 166-192.
- Himmelberg, C. P., & Petersen, B. C. (1994). R&D and internal finance: A panel study of small firms in high-tech industries. The Review of Economics and Statistics, 76, 38-51.
- Hu, J., Li, G., & Zhu, F. (2017). Regional financial developments and research and development investment–cash flow sensitivity: Evidence on Chinese public high-tech companies. International Review of Finance, 17(4), 627-643.
- International Accounting Standard Board (IASB). (2009). Related party disclosures. International Accounting Standard No. 24. London: IASB.
- Jian, M. (2003). Earnings management and tunneling through related party transactions: Evidence from Chinese corporate groups. Hong Kong University of Science and Technology (Hong Kong).
- Jiang, G., Rao, P., & Yue, H. (2015). Tunneling through non-operational fund occupancy: An investigation based on officially identified activities. Journal of Corporate Finance, 32, 295-311.
- Johnson, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2000). Tunneling. American Economic Review, 90(2), 22-27.
- Kang, M., Lee, H. Y., Lee, M. G., & Park, J. C. (2014). The association between related-party transactions and control–ownership wedge: Evidence from Korea. Pacific-Basin Finance Journal, 29, 272-296.
- Khanna, T., & Palepu, K. (1997). Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75(4), 41-51.
- Kile, C. O., & Phillips, M. E. (2009). Using industry classification codes to sample high-technology firms: Analysis and recommendations. Journal of Accounting, Auditing & Finance, 24(1), 35-58.
- Kim, J., & Park, J. L. (2015). How do financial constraint and distress measures compare? Investment Management and Financial Innovations, 12(2), 41-50.
- Kim, S., & Yoo, J. (2017). Does R&D Expenditure with Heavy Related Party Transactions Harm Firm Value? Sustainability, 9(7), 1216.
- Kohlbeck, M., & Mayhew, B. W. (2017). Are related party transactions red flags? Contemporary Accounting Research, 34(2), 900-928.
- Kuznets, S. (1967). Modern economic growth: Rate, structure, and spread. The Economic Journal, 77(308), 882-883.
- Leland, H. E., & Pyle, D. H. (1977). Informational asymmetries, financial structure, and financial intermediation. The Journal of Finance, 32(2), 371-387.
- Li, Y., Li, X., Xiang, E., & Djajadikerta, H. G. (2020). Financial distress, internal control, and earnings management: Evidence from China. Journal of Contemporary Accounting & Economics, 16(3), 100210.
- Lucas Jr, R. E. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1), 3-42.
- Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187-221.
- Nekhili, M., & Cherif, M. (2011). Related parties transactions and firm’s market value: the French case. Review of Accounting and Finance.
- Ocean Tomo, LLC. (2021). Intangible asset market value study.
- Petersen, M. A. (2009). Estimating standard errors in finance panel data sets: Comparing approaches. The Review of Financial Studies, 22(1), 435-480.
- Rahman, A. F., & Nugrahanti, Y. W. (2021). The influence of related party transaction and corporate governance on firm value: An empirical study in Indonesia. The Journal of Asian Finance, Economics and Business, 8(6), 223-233.
- Ren, H. Y., Hsu, C. C., Feng, G. F., Jia, J., & Tsai, W. C. (2021). The impacts of internal capital allocation efficiency on R&D investments: evidence from China. Applied Economics Letters, 28(14), 1195-1201.
- Schumpeter, J. A. (1939). Business cycles: a theoretical, historical, and statistical analysis of the capitalist process. New York: McGraw-Hill.
- Shin, H. H., & Park, Y. S. (1999). Financing constraints and internal capital markets: Evidence from Korean chaebols. Journal of Corporate Finance, 5(2), 169-191.
- Stein, J. C. (1997). Internal capital markets and the competition for corporate resources. The Journal of Finance, 52(1), 111-133.
- Wang, H. D., Cho, C. C., & Lin, C. J. (2019). Related party transactions, business relatedness, and firm performance. Journal of Business Research, 101, 411-425.
- Williamson, O. E. (1975). Markets and hierarchies: analysis and antitrust implications: a study in the economics of internal organization. University of Illinois at Urbana-Champaign’s Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship.
- Xiang, X. (2021). How does the internal capital market influence R&D spending? New evidence. International Journal of Emerging Markets, (ahead-of-print).
- Zhang, W. (2015). R&D investment and distress risk. Journal of Empirical Finance, 32, 94-114.
-
-
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
-
Conceptualization
-
Determinants of marketing innovation among SMEs in Vietnam: a resource-based and stakeholder perspective
To Trung Thanh , Le Thanh Ha , Hoang Phuong Dung , Doan Ngoc Thang , Tran Anh Ngoc doi: http://dx.doi.org/10.21511/im.16(4).2020.07Innovative marketing practices are essential for firms to increase sales and profitability. This paper aims to investigate the determinants of firms’ marketing innovation based on the employment of resource-based view and stakeholder theory. A probit regression model linking marketing innovation with proxies of firms’ resources and pressures from firms’ stakeholders was tested based on a dataset of 5,857 Vietnamese enterprises taken from a survey by the Ministry of Science and Technology of Vietnam in 2016. The findings indicate that firms’ size decreases the probability of marketing innovation by 1%, while internal knowledge gained from internal R&D causes the probability of marketing innovation to increase by 0.18%. Besides, the political connection and collaborations with competitors and private consultants drive the probability that firms implement the marketing innovation up by 0.09%, 0.12%, and 0.09%, respectively. On the other hand, export-oriented firms are more likely to implement marketing innovation by 0.03%, while foreign ownership reduces the chance of this decision by 0.05%. This research also reveals the essential role of the firm’s market pressures to enter into new markets or improve product quality in encouraging marketing innovation by 0.16% and 0.13%, respectively.
Acknowledgment
This research was supported by National Economics University, Grant Number: 343-QĐ-ĐHKTQD. -
Testing the fruitfulness of the institutional environment for the development of innovative-entrepreneurial universities in Ukraine
Andriy Stavytskyy , Oleksandr Dluhopolskyi , Ganna Kharlamova , Anatolii Karpuk , Valeriy Osetskyi doi: http://dx.doi.org/10.21511/ppm.17(4).2019.23Problems and Perspectives in Management Volume 17, 2019 Issue #4 pp. 274-288 Views: 1046 Downloads: 146 TO CITE АНОТАЦІЯStrengthening the integration of higher education, research, and innovation is a crucial requirement of time. The entrepreneurial university today is considered and analyzed as a promising model for their combination. The educational and scientific systems of many countries are faced with the task of converging all vertices of the “knowledge triangle.” The problem of Ukrainian educational and scientific system is a necessity to implement the concept of formation of the innovation and entrepreneurial model of a modern university, which will enable the effective implementation of administrative reforms in this field. The article aims to analyze the impact of innovative environmental factors on the development of entrepreneurial universities in Ukraine, based on correlation and panel regression analysis. The method of quantitative analysis (panel regression) is used to formulate the key results of the article. The results show that the growth of government expenditures by 1% leads to an increase in the Global Innovation Index by 0.375 in 4 years. Also, every additional 1% of people working with new technologies increases the level of Global Innovation Index by 0.75 annually. Despite European trends, Ukrainian educational environment does not contribute to the development of innovation and entrepreneurial universities (the education expenditures are ineffective). The research provides a vector for understanding the implementation of the most effective strategies of promising innovation and investment development of education and science in Ukrainian universities, considering their existing potential and contemporary world trends of development.
-
The moderating role of audit quality and firm size in the effect of corporate governance on related party transactions: Evidence from Indonesia
Perdana Wahyu Santosa , Sovi Ismawati Rahayu , Zainal Zawir Simon , Martua Eliakim Tambunan doi: http://dx.doi.org/10.21511/imfi.18(4).2021.15Investment Management and Financial Innovations Volume 18, 2021 Issue #4 pp. 166-176 Views: 930 Downloads: 297 TO CITE АНОТАЦІЯThis study aims to analyze the essential corporate governance determinants of related party transactions (RPTs) in Indonesia. Based on a hand-collected sample of three business groups of small, medium, and large-cap publicly listed firms on the Indonesia Stock Exchange (IDX) for 2013–2019, panel regression results find that foreign shareholders and firm size have a significant effect, at –2.402 and 0.248, respectively. The moderating model of audit quality shows that domestic shareholders, foreign shareholders, and firm size are significantly negatively associated, with –5.627 and –5.958 at 5%, respectively. Similar results show that foreign shareholders and independent commissioners significantly negatively affect related party transactions at –2.864 and –1.845, moderating the firm size at 10% and 5%, respectively. The moderation of regression results also indicates that audit quality and firm size tend to strengthen negative effects on the association between related party transactions and corporate governance. The moderation interaction confirms that audit quality will determine that domestic and foreign shareholders tend to increase the number of affiliate transactions. The interaction of complete information quality will force domestic and foreign shareholders to increase the role of affiliate transactions in creating firm value. The larger size of the firm, which is owned by foreign shareholders, will increase the intensity of cross-border related party transactions through the combined effects in the context of internationalization with a tendency of expropriation and transfer pricing practices, which can reduce government tax incomes.
Acknowledgment
We are grateful to the Ministry of Education, Culture, Research and Technology, Indonesia, for research grant No. 163/E4.1/AK.04.PT/2021, as well as the editor of the Investment Management and Financial Innovations journal, peer reviewers, and some colleagues for their suggestions, criticism and comments that significantly improved this paper.