The Effects of Government Awards to Small Businesses on Firm Values

Ryu, Doo Won; Ryu, Doo Jin; Hong, Ky Ttack

Korean Journal of Financial Studies 2014;43(1):47-69.
Published online February 28, 2014.

Doo Won Ryu, Doo Jin Ryu, Ky Ttack Hong

정부기관의 중소기업 포상이 나아가야할 방향

류두원, 류두진, 홍기택

Abstract

Recently, the Korean government has suggested new polices to support small businesses. Motivated by these policies, this study examines how awards to small businesses affect their firm values. We conduct empirical analysis on the firm value differences between groups of KOSDAQ-listed companies that have vs. have not received awards from the government or government-related companies. In addition, we also investigate the effect of awards from private organizations on the abnormal stock returns of the awarded firms. We use the difference-in-difference (DID) method to avoid the endogeneity problem. Interestingly, our empirical results show that there is a significant and positive effect of only one government award (Innovative Technology Show Awards: ITSA) on firm values (stock returns). Our results suggest strong evidence that technology is one of the most important factors for small innovative firms to enhance their firm values. The results also indicate that the ITSA award from the Korean government provides positive signals to the stock market and imply that the award informs investors that the small innovative firms can generate the increased amount of future cash flows.

Key Words: 기업가치,이중차분법,중소기업,중소기업정책,포상,Awards,Difference-in-Differences,Firm Values,Government Policy,Small Business