An effect of technology innovation activity on firm value and a mediation effect of leverage: evidence from Korean firms

Abstract

This paper examines a relation between technology innovation activity (TIA) and firm value. Using a simultaneous equation approach, we focus on a mediation effect of leverage, an indirect effect of TIA on firm value via its effect on firm leverage. This paper finds evidence that an increase in TIA of Korean firms leads to not only a direct increase in firm value but also to an indirect decrease in the value via a reduction in leverage. Conditional quantile regressions indicate that the direct effect of TIA on firm value is greater at the upper quantiles of firm value (Tobin's Q) whereas it is stronger at the lower quantiles. This study captures up a distinctive, negative mediation effect of leverage, irrespective of firm value and a leverage level.1 We are grateful to anonymous referees for their valuable comments and the Editor of the paper and are, of course, responsible for any remaining errors.