How Does Corporate Innovation Affect Sustainable Business Investment?

Abstract

This study examines the impact of corporate innovation on sustainable business investments of companies listed on the Korea exchange from 2011 to 2019. To this end, our study applies Hennessy’s investment model, which presents the relationship between corporate investment and Tobin’s mean Q in a probabilistic space. We find evidence of a positive relationship between corporate investment and Tobin’s average Q. Greater corporate growth opportunities lead to greater business investments, whereas the expected recovery ratio of debt capital has a negative relationship with corporate investments. The innovation performance variable is positively associated with the investments. Our results are suggestive of business investments being determined by investment outcomes, rather than the financial resource inputs for corporate innovation. Our study holds significance not only in the academic dimension, but also in policymaking. Since corporate growth is the outcome of corporate investments, the government may establish and implement economic policies that induce such investments.