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Institutional investors' ownership stability and firms' innovation

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  • Sakaki, Hamid
  • Jory, Surendranath Rakesh

Abstract

We examine the relationship between various measures of institutional ownership and investee firms' level of innovation as measured by the number of patents and patent citations. We find a direct association between the stability in the equity ownership of institutional investors and their investee firms' level of innovation. Our main finding would serve to reassure managers that they benefit from the support of long-term-oriented institutional investors who adopt a “buy and hold” investment philosophy as opposed to a “trading” philosophy. We also examine the association between the proportion of a firm's equity held by institutional investors and its innovation and find that it relies on the type of the investor. For instance, while there exists a positive association between mutual funds and firm innovation yet, the association is only positive for funds that actively manage their portfolios different from their benchmark index. Next, pressure-sensitive institutional investors' shareholdings are positively correlated with firm innovation; however, it is not necessarily the case for all the pressure-insensitive investors.

Suggested Citation

  • Sakaki, Hamid & Jory, Surendranath Rakesh, 2019. "Institutional investors' ownership stability and firms' innovation," Journal of Business Research, Elsevier, vol. 103(C), pages 10-22.
    • Handle: RePEc:eee:jbrese:v:103:y:2019:i:c:p:10-22
    DOI: 10.1016/j.jbusres.2019.05.032
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    13. Bingrun Xu & Wenli Huang & Lu Li & Lei Lu, 2023. "Mutual fund activism and corporate innovation: Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(S2), pages 2755-2779, June.
    14. Sakaki, Hamid & Jory, Surendranath & Jackson, Dave, 2021. "Institutional investors’ ownership stability and their investee firms’ equity mispricing," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
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    More about this item

    Keywords

    Institutional investors; Firms' innovation; Patents; Citations;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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