Corporate Governance and the Efficiency of Government R&D Grants

ABSTRACT Using the unique grant level data, this paper shows that government R&D grants to private firms lead to more innovation when independent monitoring (e.g. outside directors) in the grant receiving firms is stronger, but to less innovation when chaebol influence (e.g. affiliated ownership) is stronger. However, the direct effect of independent monitoring on reported innovation is negative, while that of chaebol influence is positive. These results are consistent with the hypotheses that independent monitoring reduces the misuse of grant money; increases the efficiency of managing R&D grants; and reduces the overstatement of grant outcomes, while chaebol influence does the opposite.