Innovation and Institutional Ownership
We find that greater institutional ownership is associated with more innovation. To explore the mechanism, we contrast the "lazy manager" hypothesis with a model where institutional owners increase innovation incentives through reducing career risks. The evidence favors career concerns. First, we find complementarity between institutional ownership and product market competition, whereas the lazy manager hypothesis predicts substitution. Second, CEOs are less likely to be fired in the face of profit downturns when institutional ownership is higher. Finally, using instrumental variables, policy changes, and disaggregating by type of institutional owner, we argue that the effect of institutions on innovation is causal. (JEL G23, G32, L25, M10, O31, O34)
Volume (Year): 103 (2013)
Issue (Month): 1 (February)
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- Bronwyn Hall, 2004.
"The financing of research and development,"
Chapters,in: Financial Systems, Corporate Investment in Innovation, and Venture Capital, chapter 2
Edward Elgar Publishing.
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- Bronwyn H. Hall, 2003. "The Financing of Research and Development," Finance 0303003, EconWPA.
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- Hall, Bronwyn, 2002. "The Financing of Research and Development," Department of Economics, Working Paper Series qt5rf0x9gz, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Jean Tirole, 2006. "The Theory of Corporate Finance," Post-Print hal-00173191, HAL.
- Pruitt, Stephen W & Wei, K C John, 1989. " Institutional Ownership and Changes in the S&P 500," Journal of Finance, American Finance Association, vol. 44(2), pages 509-513, June.
- Renée B. Adams & Daniel Ferreira, 2007. "A Theory of Friendly Boards," Journal of Finance, American Finance Association, vol. 62(1), pages 217-250, February. Full references (including those not matched with items on IDEAS)
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