How outside directors facilitate corporate R&D investment? Evidence from large Korean firms

• Mere addition of outside directors is not effective for promoting R&D intensity.
• Outside directors promote R&D by moderating discrepancy under high growth opportunity.
• Family control is positive for R&D under low growth opportunity.

This paper examines how outside directors facilitate corporate R&D investment in the face of family control and the discrepancy between share ownership and decision control. Our panel regression analysis of large Korean firms (1998 to 2005) shows that mere addition of a shareholder-oriented mechanism, namely outside directors, is not effective for promoting R&D intensity. However, the disciplining role of outside directors can become valid for R&D intensity by moderating the negative influence of the discrepancy when a firms' growth opportunity is high. In addition, family control is positively related to a firm's R&D investment when the firm's growth opportunity is low. Thus, we argue that the strategic management of organizational change in corporate governance should take into account the disciplining role of shareholder-oriented mechanisms in the context of ownership structure and a firm's strategic position.