Changes in foreign ownership and innovation investment: the case of Korean corporate governance reforms

The goal of this paper is to investigate how deregulating foreign equity ownership influences a firm's innovation investment. We attempt to answer this question using data from 530 Korean manufacturing firms between 1998 and 2003 through generalised estimating equations. Our findings suggest that foreign ownership and R&D investment exhibit an inverted U-shaped relationship because the incentives to monitor managers' decision-making processes initially play a greater role, but this role stagnates as the share owned by foreign investors becomes concentrated. In addition, we consider firm heterogeneity and observe the negative moderation effects of firm age and the positive moderation effects of growth opportunity.