Role of Foreign and Domestic Institutional Investors in Corporate Sustainability: Focusing on R&amp;D Investment

Sorah Park,Ilhang Shin

doi:10.3390/su12208754

Abstract

This paper examines the effects of ownership by foreign and domestic institutional investors on corporate sustainability by focusing on the level of research and development (R&D) investment. Long-term investment in R&D is crucial for companies that seek to generate sustainable growth. Ordinary least-squares regression is performed on a sample of Korean listed companies. The main test with both foreign and domestic institutional ownership is based on a study period from 2001 to 2004. The results indicate that firms with higher levels of foreign institutional ownership exhibit greater levels of corporate R&D activities, while the ownership by domestic institutions has no significant influence on firms’ R&D investment. An additional test with foreign institutional ownership data is based on an extended study period from 2001 to 2014, and shows that foreign institutional ownership is positively related to firms’ R&D investment. This result survives the two-stage instrumental variable approach used to address endogeneity factors in foreign institutional ownership. Taken together, these findings suggest that foreign institutions can effectively monitor managerial myopia and promote corporate innovations.

Highlights

This paper examines the role of foreign and domestic institutional investors in corporate sustainability by focusing on corporate research and development (R&D) investment
This paper examines how institutional investors affect corporate sustainability by promoting long-term intangible investment
The main tests are based on the multivariate regression analyses on a set of control variables that appeared to be related to the dependent variable (i.e., R&D investment), such as firm size, fixed-asset intensity, profitability, and industry competition

Summary

Introduction

This paper examines the role of foreign and domestic institutional investors in corporate sustainability by focusing on corporate R&D investment. Developing corporate sustainability requires major changes to products, services, marketing strategies, and business models to develop more efficient approaches to resource and energy management [1]. Among all of these initiatives, innovative activities are key to the provision of alternative goods and services that can help with responses to climate change and ecosystem degradation [2]. Prior research [3] argues that product growth and sustainable economic growth depend on the pace of innovation. Such innovation is crucial for companies’ sustainable growth, gaining them competitive advantage in their products, technologies, and services [4]

Results

Discussion

Conclusion