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Restraint or guidance? The impact of institutional investors' herding behavior on firm innovation

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  • Yan, Yufei
  • Tan, Linfang
  • Peng, Junxian

Abstract

Based on data from China's A-share listed companies from 2008 to 2023, this paper constructs a game model to empirically examine the impact of institutional investors' herding behavior on firm innovation. We find that herding behavior significantly inhibits firm R&D investment and innovation output by amplifying short-term performance pressure, with a particularly pronounced negative effect on utility model patents. This inhibitory effect is more significant in companies with low internal control quality or high financial regulatory intensity. Mechanism analysis reveals that the compression of R&D investment is the core mediating pathway. Therefore, it is recommended to optimize the financial regulatory framework to mitigate short-term market volatility, strengthen internal controls to resist external interference, and guide institutional investors to extend assessment cycles and cultivate a long-term capital ecosystem. Through internal and external coordination, the innovation-inhibiting effects of herding behavior can be alleviated, balancing corporate short-term survival and long-term competitiveness.

Suggested Citation

  • Yan, Yufei & Tan, Linfang & Peng, Junxian, 2025. "Restraint or guidance? The impact of institutional investors' herding behavior on firm innovation," Finance Research Letters, Elsevier, vol. 85(PE).
    • Handle: RePEc:eee:finlet:v:85:y:2025:i:pe:s1544612325015016
    DOI: 10.1016/j.frl.2025.108247
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    References listed on IDEAS

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