This paper tries to analyse the model of R&D investment and dividends the variable of foreign ownership to estimate the relationship between foreign ownership, dividend and investment in Korean firms during the period of 1990 to 2005. In this paper we estimate the empirical relation between foreign ownership, dividends, and R&D investment in Korean firms by applying the Generalized Method of Moments (GMM). The basic framework we use is an Error Correction Model (ECM), which specifies a long-run or target level of the stock accumulated R&D, but which allows a flexible specification of the adjustment dynamics.

A summary of the research is as follows. First, the findings show that foreign ownership is positively related to dividend. The higher foreign ownership is associated with a greater dividend payout. Second, firms face the financial constraints in their investment behavior. The sensitivity of cash flow on R&D investment is larger for non-chaebol and high technology firms than chaebol and low-technology firms. Third, the findings show that foreign ownership is not significantly related to R&D investment.