R&D Investment and Performance in Korea: Korean R&D Scoreboard 2005

This study develops a parsimonious model demonstrating the association between R&D expenditure and firm performance according to previous theoretical models. We call the model the "Korean R&D Scoreboard." This model extensively analyzes R&D investment in the 2004 financial statements of 550 selected firms in Korea. The Scoreboard purports to identify the characteristics of industrial R&D investments and the relationship between the R&D investments and firm performance. The Scoreboard shows that the industrial R&D investments of Korean firms heavily leaned toward a few number of industries and a limited number of very large firms. Compared to the previous years, the electric and electronics industry and automobile and transportation industry have intensified their R&D investments further while other industries with low R&D intensity decreased in 2004. The "polarization phenomenon" of R&D investments shows the trend of "the rich getting richer and the poor getting poorer." The Scoreboard also shows that industrial R&D investments have a strong positive relationship with the firm performances measured in terms of productivity, profits, growth rates, number of patent applications, and market value in price earnings ratio (PER) of firms. The more intensive a firm's R&D investment, the higher the performance realized. Some policy implications based on these findings are suggested as follows: Policy measures to encourage medium-large firms to invest in R&D are urgently needed to alleviate R&D concentration problems at the firm level as well as at the industrial level. Providing incentives and environments for them to invest more in R&D activities shall most effectively lead the Korean knowledge-based economy to be more balanced in both the industrial and firm level. However, these policy measures should avoid traditional R&D subsidy and carefully examine some critical issues including balances 'among industries, services sector innovation, incentive mechanism at firm level.