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This study explores financialization’s effects on corporate innovation using data on 711 firms taken from the KIS-Value database (1994–2019) and the generalized method of moments (GMM) model. Scholars warn that aiming solely to maximize shareholders’ interests and short-term financial investments places non-financial firms’ entrepreneurship at risk. Long-term R&amp;D and real investments decline as a result, leading to stagnant growth. This study investigates whether empirical findings from the US and the UK, where financialization negatively affects corporations’ real and R&amp;D investments, apply to the South Korean market. We find that the financialization of South Korean non-financial firms has damaged both real and R&amp;D investments. The first channel of financialization, increased financial investments, reduces real investments and R&amp;D spending. Furthermore, the second channel of financialization, profit-sharing, reduces corporate innovation. The more that South Korean non-financial firms adhere to dividend payments and stock buybacks, the greater the negative impacts on real and R&amp;D investments are.

Financialization of South Korean non-financial firms: an empirical analysis of the impacts on firms’ real and research and development investments