Chaebol’ R&D Expenditure and Implied Cost of Equity Capital

This study investigates the association between R&D expenditures and implied cost of equity capital, which varies across chaebol-affiliated firms. In Korea, chaebol firms are the main R&D expenditure firms that could be the growth engine of the Korean economy. The R&Drelated accounting method is different between U.S. and Korea; in Korea, development cost could be capitalized if it meets certain criteria such as technical feasibility. Further, this paper extends prior literature that chaebols can play a positive role towards R&D expenditure. Empirical results show that chaebol’ R&D expenditure is negatively associated with implied cost of equity capital. Therefore, we suggest that investors positively recognized chaebol’ R&D expenditure because of its co-insurance effect and R&D expenditure’ externality within business group.