Foreign Ownership and Managerial Short－termism：Cost－Stickiness Model Approach

[Purpose]After the Asian financial crisis in 1997, the Korean economy has seen continuous increases in investments and capital inflows from foreign sources. While these large capital injections from foreign investors provide additional sources of capital, there has been controversy surrounding the short－term focus of some foreign investors who seek profits in short windows and neglect long－term investments for the firm’s sustainable growth. In light of this, we investigate whether foreign investors influence Korean firms’ operational decisions. [Methodology]Utilizing the cost－stickiness model, we investigate whether and how foreign investors influence firms to adjust costs in response to demand fluctuations. [Findings]We find that firms with higher foreign ownership cut R&D expenditures and layoff employees when sales decrease periods to a lessor degree than increase them when sales increase. [Implications]Overall, we provide evidence that foreign ownership does not lead firms to make short－sighted decisions in pursuit of short－term profits by sacrificing R&D and labor investments, which are crucial resources for sustainable and long－term growth.