The Role of the Related Party in the Internationalization of SMEs: Evidence from Korea

With small and medium-sized enterprises (SMEs) in South Korea, this paper examines how the related party affects internationalization and performance. The research on the related party solely focused on the effect of transactions on firm performance and empirical findings on this causal link have been inconclusive. In order to address the heterogeneous impacts of ownership on firm performance, our study aims to determine and isolate the effect of ownership structure on performance by analyzing the moderating effect of the related party on the relationship between the degree of internationalization and performance. Using the SMEs data of listed companies for 2014-2018, we find that the related party is negatively related to the degree of internationalization. In addition, the related party negatively moderates the relationship between the degree of internationalization and performance. These findings imply that the related party is risk averse in entering new market and increases the cost of internationalization derived from the complexity of managerial and organizational coordination as the degree of internationalization increases.