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Financialization of South Korean non-financial firms: an empirical analysis of the impacts on firms' real and research and development investments

Authors
Yu, YerinJo, Jung-In
Issue Date
Apr-2022
Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
Keywords
Financialization; generalized method of moments; non-financial firms; real investment; research and development
Citation
JOURNAL OF POST KEYNESIAN ECONOMICS, v.45, no.2, pp.184 - 209
Journal Title
JOURNAL OF POST KEYNESIAN ECONOMICS
Volume
45
Number
2
Start Page
184
End Page
209
URI
https://scholarworks.sookmyung.ac.kr/handle/2020.sw.sookmyung/151379
DOI
10.1080/01603477.2022.2027786
ISSN
0160-3477
Abstract
This study explores financialization's effects on corporate innovation using data on 711 firms taken from the KIS-Value database (1994-2019) and the generalized method of moments (GMM) model. Scholars warn that aiming solely to maximize shareholders' interests and short-term financial investments places non-financial firms' entrepreneurship at risk. Long-term R&D and real investments decline as a result, leading to stagnant growth. This study investigates whether empirical findings from the US and the UK, where financialization negatively affects corporations' real and R&D investments, apply to the South Korean market. We find that the financialization of South Korean non-financial firms has damaged both real and R&D investments. The first channel of financialization, increased financial investments, reduces real investments and R&D spending. Furthermore, the second channel of financialization, profit-sharing, reduces corporate innovation. The more that South Korean non-financial firms adhere to dividend payments and stock buybacks, the greater the negative impacts on real and R&D investments are.
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