The effect of labor unions on innovation and market valuation in business group affiliations: new evidence from South Korea

• Published in: Asian business & management Vol. 19; no. 2; pp. 239 - 270
• Main Authors: Shin, Ilhang, Park, Sorah, Cho, Seong Pyo, Choi, Seungho
• Format: Journal Article
• Language: English
• Published: London Palgrave Macmillan UK 01-04-2020; Palgrave Macmillan
• Subjects: Asian Culture; Business and Management; Capital markets; Companies; Innovations; International Business; Labor unions; Original Article; R&D; Research & development; Stakeholders; Unionization; Valuation; Firm innovation; R&D expenditures; Labor union; Korean chaebols
• ISSN: 1472-4782; 1476-9328
• DOI: 10.1057/s41291-019-00089-9

This paper examines how non-financial stakeholders, especially labor unions, affect firms’ innovation in business group affiliations. Using firm-level labor union data unique to Korea, we find that firms’ innovation activities are negatively related to unionization. This negative relationship is more pronounced for large business groups, suggesting that Korean chaebols are more concerned with the influence of powerful stakeholders—union workers. Also, equity market valuation of R&D reduction under union pressure is not negative for chaebol-affiliated firms, whereas it is negative for non-affiliated firms. These results indicate that the equity market perceives that chaebols’ internal capital market facilitates group-oriented R&D investment decisions.