- Top of page
- RESEARCH MODEL AND HYPOTHESES DEVELOPMENT
- RESEARCH METHODS
- DISCUSSION AND CONCLUSIONS
Manuscript Type: Empirical
Research Question/Issue: This study examines the influence of firms' ownership structure on their technological innovation performance. First, we have examined whether ownership concentration positively influences technological innovation performance. Then we have investigated the primary reasons for the results derived from the first stage of our analysis by circumstantially exploring the impacts of four different ownership types.
Research Findings/Insights: Using five sets of cross-sectional data, consisting of 301 Korean firms, we found that ownership concentration does not have a significant effect on firm technological innovation performance. However, some ownership types (e.g., institutional and foreign) do have a positive effect.
Theoretical/Academic Implications: Drawing on agency theory and the resource dependence perspective, our paper is the first to consider a comprehensive treatment of the effect of ownership types on innovation in an emerging country, in particular in contrast to previous studies that have focused on advanced economies. Since only partial predictions suggested by agency and resource dependence perspectives were supported, it appears that neither theory adequately captures the ownership-technological innovation performance relationship. Thus, we suggest that future research should explore the question through a different theoretical lens to better understand the impact of ownership types. We suggest that transaction cost economics can be another path to approach the phenomenon.
Practitioner/Policy Implications: This study suggests that managers should recognize how each characteristic of ownership structure (types) influences the building of firm-specific capabilities for innovation. Policy makers and managers should be aware of the impact of the complete range of ownership types on technological innovation performance when they implement corporate governance reform with greater effectiveness. It also suggests that successful technological catch-up and innovation not only require policies for upgrading technology capabilities, but also the setting up of a suitable supporting ownership structure that favors innovation of firms in emerging countries. We suggest that successful technological catch-up and innovation require a supporting ownership structure.
- Top of page
- RESEARCH MODEL AND HYPOTHESES DEVELOPMENT
- RESEARCH METHODS
- DISCUSSION AND CONCLUSIONS
What determines the technological innovation performance of firms? Why do the technological innovation capabilities of firms differ? These questions have largely been argued in the contemporary literature working on the analysis of technological innovation performance. For instance, the industrial organization literature views industrial structure and dynamics as key factors affecting the technological development of firms and as explaining the financial performance and growth of firms with special reference to the size and concentration of industries, market uncertainty and entry, integration and diversification, and technological changes (Acs & Audretsch, 1987; Scherer, 1990; Sutton, 1998). The strategic management literature, on the other hand, focuses on firm-specific resources and capabilities, rather than industry structure, as important sources for technological heterogeneity and innovation performance (Barney, 1991; Rumelt, 1991). Emphasizing economic and technological factors, these two streams of research have paid little attention to the role of states and institutions, overlooking their dynamic interactions with the technological innovation activities of firms. Hence, a third line of research, the national systems of innovation perspective, highlights country-specific institutional networks and the quality of their interactions in explaining endogenous sources of national innovation performance (Edquist, 1997; Freeman & Soete, 1997; Lundvall, 1992; Nelson, 1993). Although the literature has examined the relationship between institutional factors and technological innovation performance, it has failed to provide a detailed answer to the questions by observing the phenomenon at the level of the firm, the industry, and the economy as a whole.
In contrast to the discussions explained above, corporate governance factors, which emphasize a set of mechanisms for the allocation of firms' resources and the distribution of their returns, may influence variations in a firm's technological development and innovation performance. One essential assumption about corporate governance is that certain characteristics of shareholders and their different preferences with regard to a firm's R&D and technological innovation activities play an important role in determining changes in firms' technological innovation performance (Hoskisson, Hitt, Johnson, & Grossman, 2002).
As a realization is growing that corporate governance factors significantly influence a firm's technological innovation performance, empirical examinations dealing with the relationship between them are in the limelight. Despite the recent prevailing trend, previous studies have omitted key issues and thus we attempt to contribute to the current knowledge by filling the following research gaps. First, although a number of previous studies attempted to examine whether ownership concentration leads to technological innovation performance, they yielded conflicting results. A potential explanation is that previous studies often assume large shareholders possess a homogeneous preference and have similar incentives for firms' strategic decisions, and some of them merely use one or two ownership variables to address the effects of firms' ownership structure1 (Chibber & Majumdar, 1999; David, Kochhar, & Levitas, 1998; David, Yoshikawa, Chari, & Rasheed, 2006; Hoskisson et al., 2002; Sheu & Yang, 2005). In other words, although there is a general consensus that the ownership structure of firms is considered a critical factor for determining a firm's investment strategy (Lee and O'Neil, 2003), debate on the effect of ownership concentration on firm innovation (Tribo, Berrone, & Surroca, 2007) is still inconclusive. While some studies show positive relations between these two (Hosono, Tomiyama, & Miyagawa, 2004), others found negative (Yafeh & Yosha, 2003) or neutral associations (Francis & Smith, 1995). In this regard, it is crucial to examine precisely whether ownership concentration brings positive or negative outcomes in technological innovation performance.
Second, we do not yet clearly know how ownership concentration functions. To reiterate, we argue that this is primarily because some previous studies addressed only one or two ownership variables and overlooked the interface between corporate governance and technological innovation based on a large sample of firms. In the same way, strategic and economic studies have not systematically examined how these factors influence a firm's strategic decisions to enhance technological innovation performance. For instance, Hoskisson et al. (2002) merely explored the role of institutional investors in firm innovation strategy. Delgado-Garcia, de Quevedo-Puente, and de la Fuente-Sabate (2010) investigated the impact of a partial ownership structure on corporate reputation. Others often focus on the relationship between fragmentary ownership structure and firm financial performance (e.g., David et al., 2006; Lee & O'Neill, 2003, among others). In contrast to the previous studies, the aim of this paper is to provide a comprehensive treatment of the effects of ownership types and examine how governance factors concurrently influence technological innovation performance. Our fundamental view is that extant empirical research simply seemed to assume that large shareholders have a homogeneous preference for R&D investment. However, different types of shareholders have different attitudes towards risky investment decisions and, thus, we need to classify various ownership types and explore separately the effects of different types of ownership on technological innovation performance.
Third, most of the empirical examinations were undertaken in the context of advanced economies. Tylecote, Cho, and Zhang (1998) addressed the effects of different financial systems on the process of technological innovation in the steel, fine chemicals and pharmaceutical industries of Britain and Japan. Lee and Yoo (2008) analyzed the path of corporate governance reform in a French case compelled by financial efficiency and cooperative innovation. Lee and O'Neill (2003) identified the significant effects of ownership concentration on R&D investment, which leads positively to firms' technological innovation performance, for US and Japanese firms. In the study by David et al. (2006), ownership variables have been investigated in the Japanese context with special reference to foreign ownership. These illustrations confirm that previous research has focused mainly on developed countries.
Meanwhile, David et al. (2006) suggested that more research is needed on foreign ownership worldwide and interaction effects with other types of shareholder to draw a precise picture of ownership structures and their effects on governance, strategy, and performance. With respect to this issue, Chen, Li, Shapiro, and Zhang (2008) are perhaps a welcome exception, suggesting useful insights for improving firm's innovation capability by organizing a good ownership structure, but the research issue needs to be further examined by expanding it to other emerging markets.
We argue that Korea provides an interesting empirical setting in which to examine the role of the corporate governance factor for firm-level technological innovation, because this country has successfully made the transition from imitation to innovation. It also has one of the most inspiring stories of economic development and technological progress among frontier countries. Furthermore, firms in emerging economies may have different corporate governance characteristics that may be particularly important for technological innovation performance, compared with advanced countries (Chang, Chung, & Mahmood, 2006). During the 1997 Asia Crisis, the average returns of Korean firms fell substantially (Maroney, Naka, & Wansi, 2004). Many Korean firms, once characterized by strong ownership concentration, had to change their ownership structure through massive macroeconomic factors and external pressures (e.g., government policy directives, more open capital market, IMF-mandated restructuring plans, and globalization demands). Thus, ownership structure went through drastic changes with more foreign, institutional, and insider ownership. The changes in ownership structure were particularly crucial for Korean firms to be reborn as more competitive and resilient organizations and achieve greater technological innovation performance. Based on these gaps in the literature, this study seeks to answer two research questions: (1) Is there a close association between ownership concentration and technological innovation performance in an emerging economy? (2) Which specific type of ownership concentration positively affects the technological innovation performance in an emerging economy?
In order to achieve the research objective, the rest of the paper consists of four sections. We first discuss the research model and hypotheses development. Second, we explain the large sample of businesses in Korea as well as variable measurements to test a series of hypotheses. Third, we report statistical results. Finally, we provide a discussion of the results and conclusions.
RESEARCH MODEL AND HYPOTHESES DEVELOPMENT
- Top of page
- RESEARCH MODEL AND HYPOTHESES DEVELOPMENT
- RESEARCH METHODS
- DISCUSSION AND CONCLUSIONS
Shareholders from different domains play multiple roles and have different interests for control, monitoring, and resource dependence purposes; thus, the use of a single theoretical lens is not sufficient to draw a precise research model. For this reason, two theoretical perspectives are therefore used and integrated to form the building blocks for the main hypotheses of this study. These are agency theory and resource dependence perspectives. First, the view of agency theory is that the separation of corporate ownership and control potentially leads to agency problems, which are often manifested in self-interested actions by certain corporate elements (Berle & Means, 1932; Jensen & Meckling, 1976). Hence, it suggests that differences in ownership structure are crucial to understanding the resolution as well as outcomes of agency problems in the modern corporation. Agency theory suggests that, owing to their presumed independence, institutional investors (Hypothesis 4) may be able to do a better job in monitoring and controlling management. Consequently they help firms to improve their technological innovation performance (Douma, George, & Kabir, 2006; Tihanyi, Johnson, Hoskisson, & Hitt, 2003). Agency theory also suggests that the high level of ownership concentration (Hypothesis 1) and insider ownership (Hypothesis 3) are effective mechanisms to reduce an agency problem and thus enable owners to monitor management because of their sufficient financial shares and organized power (Claessens & Djankov, 1999). Our study argues that these are critical sources for solving poor external enforcement mechanisms of agency contracts in an emerging market so that they stimulate powers to care about the market values and investment activities of the firm (Chen et al., 2008).
On the other hand, we also apply the resource dependence theory to argue that innovation activities require valuable and specific resources, including financial and technological ones. Individual firms usually do not possess all the required resources for innovation and have to rely on external ones. From this perspective, we assume that the more resource-rich outside shareholders are able to help in bringing in necessary resources for technological innovation activities, resulting in better performance. Thus, resource dependence theory views state shareholders (Hypothesis 2) and foreign ownership (Hypothesis 5) as boundary spanners who extract resources from the environment (Pfeffer, 1972). In other words, foreign investors can provide advanced foreign technology and sophisticated managerial know-how while helping the firm they control to have access to the foreign market. Likewise, the firm with a high proportion of state ownership can be in a better position to access non-tradable resources and internalize them in their controlled firms, such as state-owner's legitimacy and policy support, knowledge of local market, and access to financial resources and property rights of land (Chen et al., 2008).
Meanwhile, the perception of innovation was first recognized by Joseph Schumpeter, who defined innovation as the carrying out of new combinations of production (Schumpeter, 1912). He further articulated this concept by classifying the types of innovations into a new product, a new method of production, a new market, and a new source of supply of raw materials. Then, Freeman and Soete (1997) contended that the enhancement of innovation performance often denotes the development in the set of technical, design, manufacturing, management, and commercial activities associated with the manufacture of a new (or improved) product, or the first commercial use of a new process or piece of equipment. Porter and Stern (1999:12) commented that innovation performance is “the transformation of knowledge into new products, processes and services-involving more than just science and technology.” In contrast, Rothwell and Gardiner (1985) pointed out that technological innovation indicates not only the commercialization of a major advance in the technological state of the art, but may also embrace the utilization of even small-scale changes in technological know-how, such as an incremental innovation. By adopting and blending these various views on innovation performance and technological innovation, the conceptual definition of technological innovation performance in this study means not only new technological development per se, but also new combinations of existing technologies and creative utilization of other technology learnt from outside of the firm which leads to additional economic value in the market. In addition, we suggest that technological innovation performance includes the introduction of a new or improved product and process in the market as well as within the organization.
Figure 1 presents the research model that examines the relationships between (1) ownership concentration and technological innovation performance, and (2) four types of ownership and technological innovation performance. We have undertaken two stages of statistical analysis. First, we have examined whether ownership concentration leads to positive technological innovation performance. Then we have investigated the primary reasons for the results derived from the first stage of the analysis by circumstantially exploring the impacts of four idiosyncratic ownership types.
Ownership Concentration and Technological Innovation Performance
Concentrated large ownership structure has a positive effect on firm performance as shown in the cases of Chinese (Xu & Wang, 1999), Czech Republic (Claessens & Djankov, 1999), Russian (Blasi & Shleifer, 1996), Ukrainian (Dean, 2000), and US and Japanese firms (Lee & O'Neill, 2003). In particular, these studies show that ownership concentration plays a pivotal role in increasing the efficiency of management and firm performance. They indicate that ownership concentration can be one of the efficient means to resolve agency problems (Claessens & Djankov, 1999; Shleifer & Vishny, 1997), along with various other mechanisms, such as board of directors, stock options, and shareholder activism.
As an example of other mechanisms, Peng (2004) points out that, due to their presumed independence, outside directors on the corporate board are often able to do an excellent job in monitoring management and thus contribute to the reduction of the agency problem. Large shareholders have strong incentives and the capacity to monitor and influence management for superior performance (Grossman & Hart, 1980). Likewise, large shareholders have incentives to increase the firm's technological innovation. Stein (1989) identified two key determinants of reduced R&D investments: takeover pressures and short-term-oriented behaviors of investors. Profit-conscious minority investors, with their short-term orientation, may be willing to sell their stocks for any takeover gains or announcement of low quarterly earnings with little regard to long-term R&D projects and their potential (Bebchuk & Stole, 1993). Such short-term pressures or behaviors may hinder managers in pursuing long-term investment decisions.
In contrast, large shareholders are “information-intensive” in that they understand the long-term goals as well as short-term performance details of the firm (Lee & O'Neill, 2003). Thus, large shareholders may provide stability and support for organizations to keep focusing on long-term technological investment even in the presence of imminent takeover pressures or temporary fluctuations of stock prices. Furthermore, large shareholders may not be so quick to sell their substantial holdings in a company with their careful consideration of the long-term prospect of technological investment.
Meanwhile, some other researchers (e.g., Shleifer & Vishny, 1997; Young, Peng, Ahlstrom, Bruton, & Jiang, 2008) offer somewhat different opinions by arguing that concentrated ownership can in some cases possibly lead to worse performance as the expropriation issue proposes. This is a so-called principal-principal agency problem and arises from the conflicts between large and minority shareholders. In other words, when the ownership concentration is high, main ownership holders possessing a highly concentrated ownership often attempt to control an organization in their own interests by constraining minority owners' power. This is possible as the large shareholders are better placed to transfer corporate resources out of firms to maximize their own benefits.
Some research has noted that this happens, although not often in developed countries (La Porta, Lopez-de-Silanes, & Shleifer, 1999). In contrast, Su, Xu, and Phan (2007) recently introduced concern about principal-principal conflicts in China. However, this is not a common case in most emerging economies, where governments generally have established a new series of legal protections for minority shareholders' rights and their participation to improve corporate governance transparency (Chang, 2003; Hwang & Seo, 2000).2 Hence, our study assumes that these entrenchment costs stemming from principal-principal conflicts do not easily overwhelm alignment benefits in business environments of emerging economies, and therefore the overall effects of ownership concentration may become positive in the research context. Thus, we hypothesize:
Hypothesis 1. In emerging economies, ownership concentration is positively related to technological innovation performance of firms.
State Ownership and Technological Innovation Performance
Resource dependence theory shows how organizations try to gain control over scarce resources. This theory argues that an organization depends on resources, which ultimately originate from its environment (Pfeffer, 1972). This environment consists of other organizations to a considerable extent, while the resources that one organization needs for innovation are often in the hands of other organizations. From this perspective, accommodating state ownership in corporate ownership structure is the result of organizational efforts to manage external dependencies and uncertainties in their resource environment. In other words, state ownership can be seen as a resource-rich outsider who possesses specific properties, as well as a boundary spanner bringing in necessary resources for technological innovation. Therefore, the state can help their controlled firms to access specific and scarce technological and financial resources. Furthermore, internalization of valuable resource and organizational networks provided by the state may help reduce firms' external contingencies (Pfeffer and Salancik, 1978) and diminish external uncertainty stemming from institutional and policy changes (Pfeffer, 1972). The state may support their invested or controlled firms to participate in national R&D projects, and thus allow them to obtain key R&D resources and share benefits of research results that eventually improve firms' technological innovation performance.
Previous historical and qualitative case analyses have documented this claim in the context of emerging economies. For instance, Amsden (1989) and Kim (1997) demonstrated that the state has played an important role in promoting the economic and technological development of emerging countries. The economic success of these countries provides a good example of the state-led industrialization model, as well as a government-driven technological development strategy, described as “tightly supervised economies” (Amsden, 1989; Kim, 1997; Wade, 1990). Through an array of policy instruments, including facilitation of huge R&D investments in strategic industries, management of government-funded research institutes, establishment of patent regulations and law, importation of advanced technology from foreign countries and performance of national strategic projects, the state provided firms with key resources required for technological innovation. Gu and Lundvall (2006) also reported that during the process of industrialization and economic transition in emerging countries, the state-owned or controlled firms had substantial benefits in enhancing their technological innovation performance by having state-owners' legitimacy and policy support, as well as in accessing financial resources for internal R&D activities and foreign-owners' advanced technology and know-how. Lee, Son, and Om (1996) and Sakakibara and Cho (2002) found that states in emerging economies often directly aid firms to effectively increase their innovation capability through a series of direct funding (e.g., large-scale R&D projects for firms to enhance their competitiveness) and develop targeted specific innovation areas through considerable technology transfer efforts.
Similar commentaries can be detected not only from qualitative observations, but also from other empirical experiments. For example, Chang et al. (2006) and Xu and Wang (1999) reported that emerging market firms with a high portion of state ownership are likely to perform better in technological innovation and R&D investment. These results are due to a relatively wider set of objectives of a state and its long-term policy choices beyond the specific aim of business and short-term profit maximization. In the same vein, Munari, Roberts, and Sobrero (2002) also identified that the transference of ownership from government to private hands often led to a substantial reduction in resources devoted to R&D activities, particularly in emerging markets.
Based on these explanations, our view is that firms owned substantially by the state may have significant incentives and access to important infrastructure that will facilitate technological innovation initiated by the government (Chang et al., 2006). Hence:
Hypothesis 2. In emerging economies, state ownership is positively related to technological innovation performance of firms.
Insider Ownership and Technological Innovation Performance
Prior research has identified that insider ownership positively affects firm performance by reducing the agency cost in terms of ownership by management (Cole & Mehran, 1998; Jensen & Meckling, 1976; McConnell & Servaes, 1990), by family and affiliates (Chang, 2003; Chang & Hong, 2000), and by employees (Kruse, 1993; Tseo, Sheng, Peng-Zhu, & Lihai, 2004). According to the definition of insider ownership by Xu and Wang (1999) and Chang et al. (2006), insider owners include corporate founders, their families, affiliates, managers, and employees. The same logic can be applied to corporate performance on technological innovation. Pursuit of technological innovation has innately risky, uncertain characteristics. This uncertainty may make it relatively difficult for various outsider shareholders to understand the value of R&D investment, although they dimly recognize investments in R&D as crucial for both the survival and growth of firms. That is, compared to other external investors, insiders are logically better informed regarding the value of R&D investments. More specifically, insider owners, such as managers, founders and families, and employees are more likely to invest in long-term R&D projects for the enhancement of a firm's stable competitive position and long-term profitability rather than investing in short-term profit maximization in the following ways.
First, since managers are likely to have inside information about a firm's future prospects, they have an incentive to adjust their portfolios based on their own estimates of future performance. This is particularly prevalent in the high-tech sector because most executives own proprietary high-tech expertise (Sheu & Yang, 2005). In other words, these top officers might be able to exert their professional knowledge in making strategic decisions concerning firm survival and development. Thus, managers are inclined to invest in projects such as R&D investment that will ensure firms' long-term performance (Chang, 2003). Agrawal and Knoeber (1996) and Cho (1998) have shown, on the basis of large samples of US firms, the positive effects on a firm's value of increasing the percentage of insider ownership by managers and directors. Although there are other studies demonstrating an inverse relationship between insider ownership and firm profitability (e.g., McConnell & Servaes, 1990; Morck, Shleifer, & Vishny, 1988), these studies focus more as a primary problem on the possibilities of managerial entrenchment within the incumbent management and the managerial consumption of perquisites. Notably, they focus neither on the ownership structure of insider shareholders nor on other types of insider shareholders such as employees.
Second, we assume that the founders and their families are likely to prefer the achievement of their long-term goals with the firm's stability to mere short-term financial profits. Families prefer the achievement of long-term goals because the family intends to pass on the firm to succeeding generations (James, 1999). Founding families view their firms as an asset to pass on to their descendants rather than wealth to consume during their lifetimes. Thus, previous studies observed that family firms invest more considerably than non-family firms do (Anderson & Reeb, 2003; Casson, 1999; Stein, 1989). In other words, firm survival is an important concern for families, suggesting they are potential advocates of technological innovation and long-term value maximization. Thereby, families can have longer horizons than other shareholders and subsequently they possess a willingness to invest in long-term projects such as R&D.
Third, employee ownership, which aligns employee income and wealth to firm performance, has often been regarded as a way to improve productivity and performance by decreasing labor-management conflict and encouraging employee effort, cooperation, and information sharing (Blasi, Conte, & Kruse, 1996). Innovation activities require talented human resources. Employee ownership encourages employees to participate in various activities of new knowledge creation and transfer their core information and knowledge to all parts of the organization. Previous literature found that employee ownership increased information sharing, monitoring of fellow workers and production-related suggestions, and worker identification with the firm, which commonly lead to improved firm technological innovation performance (Tseo et al., 2004). On the other hand, employees in firms may seek to maintain a stable employment contract by enhancing corporate value stemming from R&D investment that would result in positive technological innovation performance (Chang et al., 2006). Employee ownership may also elevate technological innovation activities of firms through cooperation with other related organizational factors. For example, it helps to set up an innovative organization culture, cooperative employee relations and flexible workplace conditions and structures, which may consequently offer a source of positive effects from employee ownership on technological innovation performance (Blasi et al., 1996). Therefore:
Hypothesis 3. In emerging economies, insider ownership is positively related to the technological innovation performance of firms.
Institutional Ownership and Technological Innovation Performance
Institutional shareholders can be more active in monitoring corporate innovation decisions unlike other types of shareholders (i.e., individual investors) since they have “sufficient incentives as well as opportunities” and “the capacity to monitor and discipline corporate managers” (for the definition of institutional shareholders in this paper, see Appendix A). In other words, they have a large volume of financial investment and available explicit and implicit mechanisms to influence management (Del Guercio & Hawkins, 1999; Grossman & Hart, 1980; McConnell & Servaes, 1990). More specifically, they could encourage organizational innovative activities in the following two ways. First, institutional investors (especially banks and public pension funds as we refer to them in this study) could monitor and discipline managers through their voice (Chung & Talaulicar, 2010; David, Hitt, & Gimeno, 2001). This “voice” represents a kind of political action through communication (Chung & Talaulicar, 2010; Ryan & Schneider, 2002). It includes dialogue and negotiation with management (Byrne, 1999), issuing shareholder resolutions (Gillan & Starks, 2000), building shareholder coalitions, and using public media campaigns to criticize management policies. All these types of activism are probably undertaken by an institutional investor as well as in concert with others. Second, on rare occasions, this activist voice, as used, for example, by public pension funds, can also exert pressure on managers to make proper innovation decisions through the launching of proxy contests to counter the firm's management position, changing their investment portfolios and selling their holdings. In this vein, Bates and Hennessy (2010) explain the role of proxy proposal as a specific means for institutional shareholders' activism to influence firms' managerial decisions. Other prior studies also document that the activism of these institutional investors has significantly affected R&D investment (David et al., 2001; Kochhar & David, 1996), strategic direction and organizational outcome through refinements to corporate governance issues such as board structure (Wu, 2004), and manager-level compensation and turnover (Crespi & Renneboog, 2010; David et al., 1998; Marler & Faugère, 2010). In short, institutional ownership has a propensity to generate a positive effect on firms' key strategies, such as for R&D, diversification, and technological innovation (Bushee, 1998; David et al., 2001; Hoskisson et al., 2002; Tihanyi et al., 2003).
In particular, we argue that as institutional investors, the main banks in emerging economies have a propensity to play a central role in, for instance, appointing top management, designing strategic directions and allocating organizational resources, which significantly influences the investment process (these banks tend to be well informed about firms' prospects) (Chang et al., 2006; Lee & O'Neil, 2003). In emerging economies, traditionally, high-risk national R&D projects requiring huge amounts of financial investment have been launched with the direct help of large institutional investors for building national R&D infrastructure, with distinctive cooperation between the government and financial institutions (Opler & Sokobin, 1997). By doing so, these financial institutions secure potentially valued corporate customers, take advantage of new business opportunities (e.g., launching a new bank branch), and increase operational performance. At the same time, they also minimize investment risk as the government often offers special governmental assistance (e.g., government guaranteed loan, tax benefits, and special fee arrangements) in return for their collaboration (Cho, 1997).
Hence, firms with a high proportion of equity ownership held by institutional investors have better access to such innovation resources. These institutional investors often pursue a more long-term value, rather than short-term profit maximization (Chang et al., 2006; David et al., 2001). Their distinctive role as regulators and researchers for corporate governance and financial markets in emerging economies has substantially affected managers' investment decisions and behaviors. Thus, we hypothesize:
Hypothesis 4. In emerging economies, ownership by institutional investors is positively related to the technological innovation performance of firms.
Foreign Ownership and Technological Innovation Performance
Foreign investors (i.e., multinational corporations (MNCs) and financial institutions) often focus on the overseas market, particularly when the investment relates to their core business, which usually requires a technological competitive advantage (Chang, 1995; Kogut, 1983). In this vein, possession of majority equity shares often functions as a key catalyst motivating foreign investors to transfer firm-specific knowledge, which can enhance organizational competitiveness in host markets. In other words, MNCs and foreign financial institutions commonly provide a valuable model for developing the technological innovation capabilities of domestic, local firms in which they invest when they are majority shareholders. Foreign partners may encourage the technological innovation activities of the local firms by transferring advanced technological resources and helping them boost their R&D efforts. Foreign investors also push local partners to invest more in technology development by using their ownership shares as leverage (Chang et al., 2006). Increase in foreign ownership and foreign inward investment, particularly in emerging economies, is positively associated with successful industrial growth through the active involvement of MNCs (i.e., better knowledge possessors than local firms) in strategic business decisions and business activities (Douma et al., 2006; Kim, 1997). Hence, foreign ownership, by virtue of its resource commitment, facilitates technology transfer, technical collaboration and managerial resource sharing (Chibber & Majumdar, 1999; Douma et al., 2006; Khanna & Palepu, 2000) in emerging economies. This leads to the following hypothesis:
Hypothesis 5. In emerging economies, foreign ownership is positively related to the technological innovation performance of firms.
- Top of page
- RESEARCH MODEL AND HYPOTHESES DEVELOPMENT
- RESEARCH METHODS
- DISCUSSION AND CONCLUSIONS
Table 1 shows the basic characteristics of industry structure through technological innovation activities, R&D intensity, sales growth, and assets in our sample. With different firm sizes and numbers in subgroups, the substantial variations in mean and median across industries are reported. On average, the patent activities in the sample are focused on the automotive and electronics industries, which are classified as sectors of high and medium–high technology, respectively. Firms in chemicals and pharmaceutical industries have more R&D expenditure than others. The largest size of firms measured by asset appeared in the power, automotive, and mechanics industries. However, the textile industry is represented as the least technologically intensive sector among the overall technological innovation activities. The automobile industry is the most dynamic and fast growing in terms of sales' growth rate.
Table 1. Characteristics of Innovation Activities of Firms by Industry
|Industry||Mean||Median (N)||Lowest||Highest||Sum (sum/total)a|
|Number of patentsb|| || || || || |
| Textile||4.16||.00 (37)||.00||140.00||154.00 (.30)|
| Automotive||326.28||3.00 (35)||.00||8549.00||11,420.00 (24.80)|
| Chemical||29.52||3.00 (80)||.00||407.00||2,362.00 (5.10)|
| Electronics||459.82||5.00 (55)||.00||12912.00||25,293.00 (55.00)|
| Mechanics||110.86||6.50 (30)||.00||2326.00||3,326.00 (7.20)|
| Pharmaceutical||6.39||2.00 (41)||.00||44.00||262.00 (.50)|
| Power||27.00||1.50 (10)||.00||230.00||270.00 (.60)|
| Communication||219.00||2.00 (13)||.00||1000.00||2,847.00 (6.10)|
| Total||152.60||2.00 (301)||.00||301.00||45,934.00 (100.00)|
|R&D intensity|| || || || || |
| Textile||.19||.02 (37)||.00||1.68||7.26 (1.60)|
| Automotive||1.16||.55 (35)||.00||9.30||40.67 (9.50)|
| Chemical||2.11||.66 (80)||.00||83.40||169.22 (39.40)|
| Electronics||1.76||.99 (55)||.00||14.61||96.92 (22.50)|
| Mechanics||.80||.64 (30)||.00||2.71||24.22 (5.60)|
| Pharmaceutical||1.90||1.49 (41)||.00||6.72||77.99 (18.10)|
| Power||.28||.12 (10)||.00||1.29||2.86 (.60)|
| Communication||.82||.45 (13)||.00||3.45||10.77 (2.50)|
| Total||1.42||.61 (301)||.00||83.40||429.91 (100.00)|
|Assetsa|| || || || || |
| Textile||3.51||1.59 (37)||.15||47.01||130.18 (2.80)|
| Automotive||34.02||1.43 (35)||.18||582.00||1,190.88 (26.30)|
| Chemical||8.38||2.11 (80)||.22||151.10||670.90 (14.80)|
| Electronics||14.13||2.01 (55)||.23||268.95||777.17 (17.20)|
| Mechanics||14.82||1.64 (30)||.21||177.66||444.82 (9.80)|
| Pharmaceutical||1.42||.92 (41)||.15||5.52||58.31 (1.20)|
| Power||75.90||38.87 (10)||1.30||645.29||759.07 (16.80)|
| Communication||37.35||22.29 (13)||.13||232.32||485.66 (10.70)|
| Total||15.00||1.80 (301)||.13||645.29||4,517.02 (100.00)|
|Sales growth|| || || || || |
| Textile||20.03||10.0 (37)||−48.30||110.10||741.20 (9.50)|
| Automotive||86.71||23.20 (35)||−23.40||2037.80||3,035.00 (39.10)|
| Chemical||13.49||9.35 (80)||−26.00||92.70||1,079.00 (13.90)|
| Electronics||23.06||17.15 (55)||−55.40||225.30||1,268.30 (16.30)|
| Mechanics||13.28||5.80 (30)||−28.30||126.10||390.00 (5.00)|
| Pharmaceutical||15.33||16.80 (41)||−39.00||239.90||628.90 (8.10)|
| Power||33.05||31.70 (10)||17.60||51.40||330.50 (4.20)|
| Communication||22.06||34.00 (13)||−47.60||45.50||286.87 (3.60)|
| Total||25.78||14.60 (301)||−55.40||2037.80||7,760.67 (100.00)|
The descriptive statistics and correlation matrix of the main variables are presented in Tables 2 and 3, showing no significant problems in collinearity among the independent variables. A relatively high correlation between ownership concentration and insider ownership variables is observed. However, the two variables are not included in the same regression model. Therefore, the high correlation between them should not pose any concern for collinearity. For the test for multicollinearity, the variance inflation factor (VIF) is applied to each independent variable. The highest VIF is 2.36, while most VIFs of the key explanatory variables are less than 3.0. Hence, multicollinearity should not be a major problem in our regression analysis (Ryan, 1997).
Table 2. Descriptive Statistics: Means and Standard Deviations
|Variables name||Units of measurement||Mean||Std. Dev.||Lowest||Highest|
| 1. Patenta||Number of||39.40||262.72||.00||3152.00|
| 2. Asset||Log||7.80||1.62||4.93||13.37|
| 3. Age||Number of years||30.58||14.16||1.00||103.00|
| 4. ROA||Percent||3.49||14.30||−79.35||125.35|
| 5. Sales growth||Percent||25.78||121.55||−55.45||2037.80|
| 6. Leverage||Percent||147.02||187.22||.00||1593.15|
| 7. R&D intensity||Percent||1.42||5.02||.00||83.45|
| 8. Business groups||Dummy||.17||.38||.00||1.00|
| 9. Ownership concentration||Percent||40.84||18.14||.80||90.47|
|10. Insider ownership||Percent||36.60||19.21||.00||91.36|
|11. State ownership||Percent||1.57||6.17||.00||66.75|
|12. Institutional ownership||Percent||31.34||22.87||.10||94.65|
|13. Foreign ownership||Percent||7.53||14.06||.00||86.00|
Table 3. Correlation Matrix
| 1. Patent||1|| || || || || || || || || || || ||_|
| 2. Asset||.36*||1|| || || || || || || || || || ||1.00|
| 3. Age||.06||.08||1|| || || || || || || || || ||1.15|
| 4. ROA||.03||−.03||−.01||1|| || || || || || || || ||1.15|
| 5. Sales growth||.00||.03||−.07||.03||1|| || || || || || || ||1.16|
| 6. Leverage||.00||.13†||−.06||−.20*||.40*||1|| || || || || || ||1.16|
| 7. R&D intensity||.01||−.02||−.04||−.05||.00||−.01||1|| || || || || ||1.30|
| 8. Business group||.20*||.51*||.03||.07||−.02||.10||.02||1|| || || || ||1.30|
| 9. Ownership concentration||−.01||.04||−.15†||.07||.07||.01||−.14†||−.05||1|| || || ||1.53|
|10. Insider ownership||−.12†||−.04||−.05||.07||−.12†||−.12†||−.11†||−.01||.68**||1|| || ||1.55|
|11. State ownership||−.00||.20*||−.03||.02||.00||−.04||−.00||.02||.12†||.09||1|| ||2.13|
|12. Institutional ownership||.01||.30*||−.09||.14†||−.05||.05||−.09||.18*||.27*||.07||−.04||1||2.13|
|13. Foreign ownership||.29*||.42*||−.04||.08||−.01||−.06||.05||.20*||.02||−.13†||.04||−.05||2.36|
We have undertaken two stages of statistical analysis. First, Table 4 shows the estimation model of effect of ownership concentration on firms' technological innovation performance. Second, Table 5 presents the effect of four different types of ownership on firms' technological innovation performance without ownership concentration.
Table 4. Negative Binomial Regression Analyses for Firm Technological Innovation with Ownership Concentration (1st Stage)
| ||Hypotheses||Patent (t)||Patent (t + 1)||Patent (t + 2)||Patent (t + 3)||Total patents (t − t + 3)|
|Concentrationa||H1||.02 (.95)||.29 (.86)||.09 (.83)||−.60 (.81)||.04 (.73)|
|Control variables|| || || || || || |
|Firm size (asset)|| ||1.29 (.093)***||1.27 (.083)***||1.23 (.079)***||1.14 (.082)***||1.21 (.068)***|
|Firm age|| ||−.01 (.01)||−.03 (.08)||.01 (.07)||.02 (.08)||.03 (.07)|
|Leverage|| ||.14 (.08)†||.13 (.06)**||.09 (.07)**||−.11 (.09)||.08 (.06)*|
|Firm profitability (ROA)|| ||3.88 (2.35)†||3.87 (1.95)*||4.97 (1.91)**||3.38 (1.64)*||3.82 (1.61)*|
|Sales growth|| ||−.36 (.28)||−.39 (.21)†||−.36 (.18)*||−.17 (.19)||−.32 (.17)†|
|R&D intensity|| ||.08 (.06)||.19 (.06)**||.19 (.06)**||.19 (.07)*||.16 (.05)***|
|Business groups|| ||1.92 (.49)***||.99 (.44)*||.75 (.40)†||1.13 (.38)**||1.39 (.37)***|
|Medium-low technology|| ||2.33 (.70)***||2.39 (.66)***||2.50 (.63)***||2.23 (.62)***||2.48 (.55)***|
|Medium-high technology|| ||2.75 (.48)***||2.56 (.45)***||1.64 (.43)***||1.80 (.42)***||2.46 (.37)***|
|High-technology sector|| ||2.13 (.55)***||1.53 (.51)**||1.49 (.48)**||1.40 (.48)||1.54 (.41)***|
|Constant|| ||−2.26 (.83)**||−2.53 (.79)***||−2.45 (.70)***||−1.06 (.61)†||−.77 (.62)|
|Chi-sq (d.f.)|| ||279.08 (11)||305.92 (11)||329.19 (11)||283.20 (11)||395.73 (11)|
|Pseudo R2|| ||.19||.20||.19||.18||.17|
Table 5. Negative Binomial Regression Analyses for Firm Technological Innovation without Ownership Concentration (2nd Stage)
| ||Hypotheses||Patent (t)||Patent (t + 1)||Patent (t + 2)||Patent (t + 3)||Total patents (t − t + 3)|
|Explanatory variables|| || || || || || |
| State ownership||H2||1.73 (2.32)||−.003 (2.47)||.29 (2.00)||−4.17 (2.60)||−.08 (1.78)|
| Insider ownership||H3||−1.26 (.84)||.05 (.76)||.63 (.74)||−.00 (.81)||−.29 (.65)|
| Institutional ownership||H4||3.65 (.76)***||3.23 (.69)***||3.01 (.63)***||2.10 (.61)***||2.96 (.58)***|
| Foreign ownership||H5||4.62 (1.36)***||5.66 (1.28)***||5.99 (1.18)***||4.65 (1.18)***||.49 (1.09)***|
|Control variables|| || || || || || |
| Firm size (asset)|| ||1.28 (.12)***||1.30 (.11)**||1.22 (.10)***||1.18 (.11)***||1.24 (.09)***|
| Firm age|| ||−.01 (.01)†||−.04 (.08)*||.03 (.01)***||.02 (.01)**||.02 (.01)**|
| Leverage|| ||.14 (.08)*||.12 (.06)*||.08 (.07)*||−.10 (.09)||.07 (.06)*|
| Firm profitability (ROA)|| ||.83 (2.03)||1.22 (1.83)||1.01 (1.95)||1.05 (1.86)||1.41 (1.82)|
| Sales growth|| ||−.38 (.39)||−.19 (.18)||−.13 (.17)||−.02 (.18)||−.17 (.17)|
| R&D intensity|| ||.16 (.07)*||.23 (.05)***||.24 (.05)***||.23 (.06)***||.21 (.52)***|
| Business groups|| ||1.31 (.46)**||.83 (.40)*||.69 (.35)*||1.08 (.35)**||1.12 (.35)**|
| Sectoral context|| || || || || || |
| Medium-low technology|| ||1.80 (.64)**||1.98 (.60)***||1.99 (.56)***||1.92 (.58)***||2.00 (.50)***|
| Medium-high technology|| ||2.31 (.43)***||1.93 (.41)***||2.13 (.38)***||1.49 (.39)***||1.99 (.34)***|
| High-technology sector|| ||1.74 (.51)***||1.30 (.45)**||1.47 (.44)***||.56 (.46)||1.39 (.39)***|
|Constant|| ||−3.29 (.74)***||−3.68 (.68)***||−3.94 (.63)***||−2.42 (.65)***||−1.87 (.54)***|
|Chi-sq (d.f.)|| ||279.61 (14)||310.14 (14)||337.65 (14)||288.54 (14)||399.95 (14)|
|Pseudo R2|| ||.19||.20||.20||.19||.17|
Table 4 shows no significant effect of ownership concentration on technological innovation performance, thus rejecting Hypothesis 1. In addition, Appendix C shows the results of additional regression analysis on the relationship between ownership concentration and technological innovation performance. The largest shareholder was used to assess ownership concentration. However, we find there is no difference between the results. In order to find the reasons for the result and identify specific ownership structures positively influencing the phenomenon, we tested circumstantially the impacts of each ownership structure in the subsequent examination. In Table 5, we found no significant effect of state (Hypothesis 2) and insider ownership (Hypothesis 3) on technological innovation performance of firms. In contrast, we confirmed the positive effects of institutional ownership on the dependent variable (p < .001; t-value = 4.79, 4.63, 4.71, 3.42 and 5.12, respectively). This supports Hypothesis 4. Consistent with Hypothesis 5, firms with more foreign ownership have higher technological innovation performance (p < .001; t-value = 3.40, 4.40, 5.05, 3.92 and 4.56, respectively). Results of both institutional and foreign ownership were positively significant and consistent over three different times of dependent variables as well as aggregated patent performance over four years.
Furthermore, we have undertaken another statistical analysis using R&D expenditure (i.e., R&D expenditure to sales) as an alternative dependent variable (see Appendices D1 and D2). Appendix D1 reports that ownership concentration has no significant effect on technological innovation performance during all the periods estimated, except for the same year of observation as that of independent variables, showing a negative and significant effect on technological innovation performance. Consistent with our main analyses based on patent count, this result suggests that there is no positive relationship between concentrated ownership and R&D investment. In Appendix D2, we also found that state and insider ownerships have no association with technological innovation performance of firms at all points of the observed periods. However, institutional and foreign ownerships turned out to be positive and significant on technological innovation performance at t and t + 1 points of measured times as well as at aggregated number of patents during estimated periods. For foreign ownership, the effect also turned out positive and significant at time t + 3. These results imply that institutional and foreign ownerships have a positive influence on subsequent technological innovation performance with no time lag or a time lag of one year, but not longer. One possible explanation is that ownership decisions may directly influence R&D investment performance within a relative short-term period, as R&D intensity is usually considered as an input measure of innovation, contrary to patent registration count, which is an output measure of innovation. Largely, we uncovered that the results are similar to the findings based on patent data.
DISCUSSION AND CONCLUSIONS
- Top of page
- RESEARCH MODEL AND HYPOTHESES DEVELOPMENT
- RESEARCH METHODS
- DISCUSSION AND CONCLUSIONS
Our study has two principal contributions. Firstly, we attempt to examine the relationship between ownership concentration and technological innovation performance, an issue on which previous studies often generate conflicting results, and test it minutely with a comprehensive treatment of ownership structure, overcoming the weakness in previous studies that have used a narrower focus of one or two types of ownership. By doing this, we find that specific ownership types (i.e., institutional and foreign ownerships) are closely associated with technological innovation performance. Secondly, we also find that neither agency nor resource dependence theory adequately explains this relationship. By drawing attention to the interplay of institutional and foreign control as agents of corporate innovation, we particularly provide insight into how firms in emerging economies build proper corporate governance structures and “firm-specific” capabilities for technological innovation.
The finding suggests that concentrated ownership does not play a positive role in monitoring and controlling managers' investment behavior related to technological innovation performance. This finding may also imply that large owners may have interests other than technological innovation. (We suggest that it would be interesting for future research to examine what interests large shareholders might pursue other than technological innovation in emerging economies.) Agency theory states that effective firm responses in a rapidly changing environment hinge on an appropriate fit between ownership, control, and monitoring mechanism (Berle & Means, 1932; Jensen & Meckling, 1976). Our results advocate that specific profiles of ownership structure are necessary to boost technological innovation performance in an emerging economy. According to our findings, firms with a high proportion of institutional ownership perform better in technological innovation performance. This result reflects the important historical tradition and the change of corporate governance structure in the country. Institutional investors in Korea, which have been dominated by banks, are likely to pursue the long-term stability of firms by promoting technological innovation performance (Chang et al., 2006). Traditionally, the financial market has not been fully developed in Korea, so that banks have been the main creditors and financial resource providers for corporations (Kim, 1997; Woo, 1991). In such a situation, banks as the main institutional investors may tend not to have a short-term profit-maximizing perspective but to pursue long-term objectives favorable to industrial and national level R&D development.
With respect to the resource dependence perspective, researchers studying international business commonly argue that no one firm possesses sufficient resources to compete in the global marketplace, and thus many MNCs often try to improve their organizational competitiveness by seeking complementary assets in foreign markets (Park & Ghauri, 2011). Our research extends resource dependence theory by suggesting that resource dependency can be a primary motivation not only for MNCs, but also for local firms to obtain necessary resources and precious assets to develop their organizational competitiveness. In other words, international business scholars advise that MNC investments may function as an important means for foreign firms to bring in necessary resources that are not available within organizations, as well as home markets. In contrast, foreign investment may also play a pivotal role for local firms in strengthening their corporate power and reducing environmental uncertainty leading to an upgrade of their technological innovation performance as foreign ownership commonly allows better access to advanced foreign knowledge by the firms attracting foreign investments. That is, the foreign firms' direct investments expose their proprietary knowledge, which creates a potential for the transference of technology and R&D capability to the local firms. Moreover, knowledge transfer by MNCs is an important event mainly in emerging economies in that foreign ownership becomes a strategically important source for local firms to enhance technological innovation performance. Likewise, our study confirms that foreign corporations and investors in the economy played positive roles in pursuing corporate governance improvement that significantly affects developing firms' technological innovation activities, especially after the financial crisis. In particular, large-scale investments from international funds and foreign investors in the country have systematically influenced the speed and process of corporate governance reforms and restructuring. In turn, this corporate reform has facilitated a favorable environment for foreign investors and ownership dispersion. This result also shows the validity of previously documented positive effects of foreign ownership on firm performance in emerging countries (Douma et al., 2006).
However, we fail to discover the positive influence of other ownership types (i.e., insider and state ownerships) on technological innovation performance. This clearly indicates that we need to think about other theoretical alternatives in order to precisely examine the relationship. As an option, transaction cost economics (TCE) can be another path to approach the phenomenon.
TCE explains why firms exist, expand, or outsource activities to the external environment. It suggests that firms try to minimize unnecessary transaction costs deriving from the process of exchanging resources within the business environment (Williamson, 1965). According to the theory, the extent of transaction costs are influenced by various factors, such as opportunism, bounded rationality, environmental uncertainty, information impactedness, and asset specificity (Williamson, 1965), and they are all expected to potentially deteriorate, for example, technological innovation performance by increasing the external transaction costs. Since TCE contributes to addressing how firms determine their scopes and governance structures, it has often been applied to many areas, such as studies associated with the formation of corporate ownership and strategic focus on organizational control (Hoskisson, Hill, & Kim, 1993). We assume that this perspective may offer an excellent theoretical foundation in considering why firms accommodate or increase proportions of insider and/or state ownerships in their corporate governance structure for better technological innovation performance in emerging economies. Compared to advanced economies, emerging countries can be characterized as a less-developed market and an uncertain business environment experiencing a lack of major necessary resources required for the enhancement of technological innovation performance. Furthermore, transactions for many resources through markets are relatively expensive or even sometimes impossible. In this situation, insider ownership (e.g., founder and their families) may facilitate smooth communication flow within top management and consolidate decision-making power that offers the advantage of economizing transaction costs, allowing firms to promptly respond to business circumstances, and also enabling them to efficiently allocate organizational resources to technological innovation performance (Poza, Alfred, & Maheshwari, 1997; Tagiuri & Davis, 1996). In contrast, the organizational links with the state may function as a shield protecting environmental uncertainty, prohibiting opportunistic behaviors of business partners, and allowing greater access to information about governmental policies on national technology, which not only lowers corporate transaction costs, but also eventually eases the achievement of technological innovation performance. These explanations lead us to a new theoretical avenue in which TCE may provide a solid basis to explain the relationship between governance structures, including state and insider ownerships and technological innovation performance, particularly in emerging countries.
The first policy implication arising from our study is that control of ownership structure is necessary for firm technological innovation performance in emerging countries. Our results suggest successful technological catch-up and innovation require a supporting ownership structure. Potential problems in setting up the kind of ownership structure suggested in our study should be discussed and addressed by policy makers. This implies the on-going process of ownership transformation should become more sophisticated and should include an awareness of the impact of the complete range of ownership types on technological innovation performance. Second, rapid technological catch-up and radical innovation thrive in an environment of supportive institutional and collaborative inter-organizational arrangements. The ownership effects in the form of institutional investors and foreign ownership are quite useful in promoting such innovation-conducive infrastructure. In this sense, the findings of this study in a Korean context suggest that firms in emerging economies may achieve strong competitive positioning in changing markets through the strategic implementation of ownership structures (Chang, 2003; Chang et al., 2006; Filatotchev, Hoskisson, Buck, & Wright, 1996; Kim, 1997).
Limitations and Directions for Future Research
Although this study offers invaluable implications, we should acknowledge the presence of research limitations. First, we measure technological innovation performance of firms by using patent data, a legal form protecting firms' intellectual property. Not all firms protect their technological assets and innovation performance with patents. Some may prefer to keep their expertise as trade secrets or implement organizational mechanisms for protecting technological innovations. In addition, not all firms necessarily reap such technological innovation benefits (i.e., the immediate shareholders' value in the form of desirable financial performance). Since it is unclear what the key mechanisms are that effectively translate technological innovation into shareholder wealth, other underlying factors may function as a critical linkage between technological innovation and shareholder wealth creation and value realization. Future research may therefore need to explore why firms with outstanding technological innovation performance fail to increase their shareholder wealth in a timely manner.
Second, the generalizability of the findings is limited by our use of Korea as the research context. Future work should widen the approach used here to other economies in order to further develop our understanding of the technological innovation performance of firms in emerging economies from an ownership perspective.
Third, although our measurement method on ownership variables is acceptable, other studies might assess them in a different way. For example, the way we measure an insider ownership could possibly be the reason for our non-significant relationship with technological innovation performance (we used the aggregated level of insider ownership). Thus, future work should explore the systematic effects of different insiders by considering each different type of insider separately, as they may not have the same incentives for a firm's innovation activities.
Fourth, as our study focused on how each type of shareholder affects technological innovation performance, it will be interesting if future study analyses whether and how a diversified ownership structure affects technological innovation performance. Finally, as suggested in the previous section, we do not know what interests large shareholders might pursue other than innovation in emerging economies. This can be an additional future avenue of research.
To sum up, our overall theoretical and practical contributions reside in the following: Many emerging countries (e.g., Korea and China) have recently experienced both comprehensive ownership transitions and rapid technological catch-up with advanced countries in a relatively short period. This is probably a common phenomenon in emerging economies. This study confirms that ownership types are certainly an important consideration in building firm-specific capabilities for technological innovation by integrating the agency theory and resource dependence perspectives. In using both theoretical lenses, we draw a clear picture of the effects of ownership on technological innovation performance and find that each different ownership agent has a propensity to show different interest in and preference for technological innovation performance. This result can help guide future corporate and public policies, particularly in the emerging economy context, which are in the process of improving corporate technological innovation performance and attempting to build a sound ownership structure. We suggest that corporate strategy and policy makers should be better aware of the impact of the complex ownership types on technological innovation performance in implementing effective corporate governance reforms.
Dr. Suk Bong Choi is an Associate Professor of Human Resource Management and Organization Theory at the University of Ulsan, South Korea. Dr. Choi holds a Ph.D. in Management from the University of London, UK and European Master of Public Administration from the Catholic University of Leuven, Belgium. His research interests are in corporate governance, technology and innovation management, and the ICT industry. His articles have appeared in journals including Academy of Management Best Paper Proceedings, Korean Journal of Regulatory Studies, Korean Journal of Human Resource Management Research, Entrue Journal of Information Technology, and International Journal of Services and Operations Management.
Dr. Byung Il Park is an Associate Professor in International Business at the College of Business Administration, Hankuk University of Foreign Studies, South Korea. He holds a PhD from Bradford University School of Management, UK. His research currently focuses on knowledge acquisition and performance in international joint ventures. His research interests also include mergers and acquisitions, absorptive capacity, corporate strategy, corporate social responsibility, and foreign direct investment in financial industries. He has been published in such journals as Journal of World Business, International Business Review, Management International Review, and Asia Pacific Journal of Management.
Dr. Paul Hong is Professor of Operations Management at the University of Toledo, USA. He holds a doctoral degree in Manufacturing Management and Engineering from the University of Toledo. He also holds an MBA and an MA in Economics from Bowling Green State University, USA. His research interests are in technology management, operational strategy and global supply chain management. His articles have been published in journals including European Journal of Innovation Management, International Journal of Operations and Production Management, Journal of Operations Management, Journal of Supply Chain Management, International Journal of Production Research, International Journal of Logistics Systems Management, and Management Decision.