Legal Shareholder Protection and Corporate R&D Investment

Abstract:     
This paper investigates the effect of shareholder protection law on corporate R&D investment. I find that the institutional protection of shareholder benefits reduces both underinvestment and overinvestment in R&D projects. If we increase shareholder protection from the weakest to the strongest, R&D investment will increase by up to 96% for firms that may underinvest, but will decrease by as large as 84% for firms which may overinvest. Shareholder protection further significantly enhances the growth of firms in R&D intensive industries. The results consistently show that strong legal shareholder protection significantly improves the efficiency of corporate R&D investment.

Number of Pages in PDF File: 62

Keywords: Legal shareholder protection, underinvest, overinvest, R&D

JEL Classification: G15, G31

working papers series