Can directors' liability reduction promote corporate innovation?
ISSN: 0307-4358
Article publication date: 15 June 2021
Issue publication date: 22 October 2021
Abstract
Purpose
This study aims to explore the effects of director liability reduction (DLR) laws on corporate innovation strategies in South Korea.
Design/methodology/approach
Regression analysis is used to investigate the effects of the directors' liability reduction coverage on the corporate innovation. The data includes 7,517 firm-year observations spanning from 2011 to 2017.
Findings
The authors provide empirical evidence that directors feel protected by the coverage and are able to focus more on innovative projects. Using research and development expenditure and the number of patents registered to measure the firm's innovation, we find that covered firms spend more on R&D and register more patents than non-covered firms.
Originality/value
This study extends the literature on corporate innovation. A vast amount of literature empirically tests how best to motivate directors to engage in innovative activities. On the same line, this study is the first to empirically test the effect of DLR shelters on directors' motivations toward innovation.
Keywords
Acknowledgements
Funding: This work was supported by “Human Resources Program in Energy Technology” of the Korea Institute of Energy Technology Evaluation and Planning (KETEP), granted financial resource from the Ministry of Trade, Industry and Energy, Republic of Korea. (No. 20184010201680).
Citation
Choi, S. and Jung, H. (2021), "Can directors' liability reduction promote corporate innovation?", Managerial Finance, Vol. 47 No. 11, pp. 1636-1650. https://doi.org/10.1108/MF-11-2020-0590
Publisher
:Emerald Publishing Limited
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