Foreign Ownership and Firm Innovation: Evidence from Korea

Abstract

This study examines whether foreign equity investment promotes domestic firms' innovation activities. Using panel data on the Korean firms during the 1999-2013 period, we find that foreign ownership has a positive effect on firms' innovation activities. Furthermore, we also show that, as compared to non-chaebol firms, chaebol firms' innovation activity becomes much greater with the increase of foreign ownership. Finally, we investigate industry-level spillover effects of innovation. Specifically, we find that foreign ownership promotes innovation activities via forward linkage, the effect of which is also more pronounced in chaebol firms.