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Do institutional investors still encourage patent-based innovation after the tech bubble period?

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  • Chang, Hsiu-yun
  • Liang, Woan-lih
  • Wang, Yanzhi

Abstract

This paper reexamines the effect of institutional ownership on corporate patent-based innovation. Using an updated sample, we confirm that higher institutional ownership leads to more innovations, including more citations received by patents of a firm, and higher patent generality and originality. However, we find that the impact of institutional ownership on patent-based innovation greatly decreases after the tech bubble bursts and this lower support is driven by both transient and non-transient institutional investors. We do not find that institutional investors intentionally lower their support of patent-based innovation for improving this less efficient innovation. Our results support the contention that the exorbitant litigation cost of patents lowers the incentives for institutional investors to invest in patent-based innovation after 2000.

Suggested Citation

  • Chang, Hsiu-yun & Liang, Woan-lih & Wang, Yanzhi, 2019. "Do institutional investors still encourage patent-based innovation after the tech bubble period?," Journal of Empirical Finance, Elsevier, vol. 51(C), pages 149-164.
    • Handle: RePEc:eee:empfin:v:51:y:2019:i:c:p:149-164
    DOI: 10.1016/j.jempfin.2019.02.003
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    More about this item

    Keywords

    Institutional ownership; Innovation; Patent; Patent cost;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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