Exploration and Exploitation of Listed Companies in Korea: Focusing on the Relationship between R&D and Advertising Expenses and Enterprise Value

Abstract

Based on the theoretical basis of Myers (1977) and Ohlson (1995), this study explored the effect of R&D expenses as a company's exploratory activities and advertising expenses as an activity that utilizes existing capabilities on corporate value. As a way for companies to explore new capabilities, the effect of R&D expenses on corporate value is examined, and as a method for strengthening existing capabilities and strengthening market competitiveness, the effect of advertising expenses on corporate value is considered. The empirical analysis subjects of this study are companies listed on the Korean stock market from 2011 to 2021. Ultimately, the number of sample data used in the empirical analysis of this study is 9,220 firm-year, and all are extracted from the KIS-VALUE DATABASE. In an empirical analysis using a regression model, the relationship between R&D and advertising R&D expenses on corporate value is investigated. The results of the regression analysis showed that both R&D expenses and advertising expenses had a positive effect on corporate value. An increase in R&D expenses increases corporate value by increasing future growth opportunities beyond a company's present value, and an increase in advertising expenses maximizes product or service value and enhances corporate value by strengthening market competitiveness. In addition, it is found that the impact of R&D expenses on corporate value is greater than that of advertising expenses, indicating the importance of R&D as a company's exploratory activities. These results provide important implications for corporate strategic management. Companies can achieve corporate value improvement through strategic investment and management of R&D and advertising expenses. Companies can strengthen their competitiveness through R&D as a future exploration activity and through advertising to create results in the existing market.