The Same Wind, Different Sails: CEO Business Education, Stock Overvaluation, and R&D Investment in South Korea

This study examines how stock overvaluation changes the relation between CEO business educational background and R&D investment. CEO business education may improve capital allocation and financing decisions, but it may also increase caution toward uncertain long-horizon projects such as R&D. Using a sample of Korean listed firms from 2011 to 2023, we find that business-educated CEOs are associated with lower R&D investment when firms are not overvalued, whereas they are associated with higher R&D investment when firms are overvalued. This result supports a reversal hypothesis rather than an amplification or mitigation hypothesis. The finding is robust to dynamic panel estimation, instrumental variable estimation, propensity score matching, alternative R&D measures, alternative overvaluation definitions, positive-R&D sample restrictions, and industry-by-year fixed effects. Mechanism tests show that the positive association between CEO business education and R&D investment among overvalued firms is concentrated among firms with short-horizon investors, regardless of financial constraint status. These findings are difficult to reconcile with a pure equity-financing explanation and are more consistent with a catering-based interpretation. Further tests show that the reversal pattern does not differ significantly by CEO ownership status or Chaebol affiliation. Overall, this study shows that CEO business education does not have a fixed implication for R&D investment. Its effect depends on valuation conditions, and the evidence suggests that the R&D response of business-educated CEOs under overvaluation is more consistent with catering incentives than with financing opportunities alone.