Abstract
Purpose – This paper’s purpose is to investigate how foreign ownership and innovation affect firm value. Design/methodology – Firm innovation is defined as operational efficiency, which is calculated by adopting data envelopment analysis (DEA). Additionally, R&D intensity is included as a measure of innovation in the analysis. We used firm-level data from manufacturing companies in Korea. The sample comprised 3,753 firm-year observations for every year in the period 2003–2017. Findings – We found that foreign ownership and innovation are positively related to firm value (Tobin’s Q). Foreign ownership moderates innovation’s contribution to firm value, implying that foreign ownership may enhance the value relevance of firm innovation. In addition, we found that firm innovation partially mediates the relationship between foreign ownership and firm value. Originality/value – This highlights the important role of foreign investors’ monitoring; wherein foreign investors enhance firm value by facilitating firm innovation. Our results suggest that foreign ownership can be crucial for innovation and may serve to address weak ownership structures.
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