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The Effect of Investor Protection on Cross-Country Differences in R&D Investments

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  • Shou-Min Tsao
  • Hsueh-Tien Lu

Abstract

This study examines international differences in firms’ R&D investments across 31 countries between 2006 to 2014. We analyze whether the level of investor protection, defined as the extent of minority shareholder rights and the quality of legal enforcement, is associated with cross-country differences in R&D investments. We find that strong investor protection reduces the conflicts of interest and information asymmetry between insiders and outsiders associated with R&D investments and, therefore, encourages value-enhancing R&D investments. In addition, we find that strong investor protection mitigates the dependency of firms’ R&D investments on their internal resources and reduces R&D investment–cash flow sensitivity. JEL classification numbers: G15, G31, G32, O31Keywords: Investor protection, R&D investments, R&D investment–cash flow sensitivity.

Suggested Citation

  • Shou-Min Tsao & Hsueh-Tien Lu, 2018. "The Effect of Investor Protection on Cross-Country Differences in R&D Investments," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 8(4), pages 1-5.
    • Handle: RePEc:spt:admaec:v:8:y:2018:i:4:f:8_4_5
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    More about this item

    Keywords

    investor protection; r&d investments; r&d investment–cash flow sensitivity.;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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