How Do Business Groups’ Patenting Activities Affect Product Markets? Evidence from Korea

Abstract

This study examines how business group affiliation influences corporate innovation and its economic implications in product markets. Using patent data from Korean public firms, we find that business group-affiliated firms (i.e., chaebols) file more patents than their non-chaebol counterparts. We explore two potential mechanisms underlying this difference: the responsiveness of R&D investment to growth opportunities and intragroup knowledge spillovers. We find suggestive evidence that chaebol firms may allocate R&D more efficiently in response to investment opportunities and benefit from innovation generated by affiliated firms. Moreover, the positive effects of patents on future profitability are more pronounced for chaebol firms. Finally, while chaebols’ patenting activities are associated with increases in their market share, they does not appear to contribute to overall industry growth. Taken together, our findings highlight the role of innovation in reinforcing chaebols’ competitive advantage and market dominance.