The Relation between Cash Holdings and R&D Expenditures According to Ownership Structure

In this paper, we examine how the cash holdings have an impact on R&D expenditures and whether the ownership mechanisms moderate the R&D expenditures- the resource of internal funds relationship. The result showed that cash holdings have a positively relationship with R&D expenditures. Specially, we found that institutional ownership had a positive moderating effect of the R&D expenditures-the resource of internal funds relationship. In additional analysis, the large business group and the share of managers doesn’t moderate the relationship between cash holdings and R&D expenditures. These results provide that institutional investor in Korea tend to be long-term oriented, “active” and “sophisticated” investor. They are less likely to evaluate corporate executives on the basis of short-term earnings alone and are more likely to support value-creating.