When Do Foreign Institutional Blockholders Passively Promote Firm Innovation in a Local Market? Evidence from Korea†
Denis Yongmin Joe
College of Global Business, Korea University, Republic of Korea
Search for more papers by this authorCorresponding Author
Chune Young Chung
School of Business Administration, Chung-Ang University, Republic of Korea
Corresponding author: School of Business Administration, Chung-Ang University, 84 Heukseok-ro, Dongjak-gu, Seoul 06974, Republic of Korea. Tel: +82-2-820-5544, email: bizfinance@cau.ac.kr.
Search for more papers by this authorJustin Morscheck
School of Business Administration, Gonzaga University, United States
Search for more papers by this authorDenis Yongmin Joe
College of Global Business, Korea University, Republic of Korea
Search for more papers by this authorCorresponding Author
Chune Young Chung
School of Business Administration, Chung-Ang University, Republic of Korea
Corresponding author: School of Business Administration, Chung-Ang University, 84 Heukseok-ro, Dongjak-gu, Seoul 06974, Republic of Korea. Tel: +82-2-820-5544, email: bizfinance@cau.ac.kr.
Search for more papers by this authorJustin Morscheck
School of Business Administration, Gonzaga University, United States
Search for more papers by this authorAbstract
Using extensive hand-collected data on granted patents, we examine the effect of institutional blockholder monitoring on corporate innovation in Korea. Specifically, we focus on the relation between institutional blockholding and firm innovation. We find that institutional blockholders positively influence firm innovation and that this positive effect is driven primarily by foreign institutional blockholders, particularly when they engage in passive monitoring. The Korean market features limited participation by shareholders and pressure-sensitive domestic institutions. Thus, we demonstrate the importance of corporate governance for firm innovation in emerging markets, where corporate innovation is increasingly important for long-term economic growth, competitiveness, and value creation.
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