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Unleashing creative potential: The role of stable institutional ownership in exploratory innovation

Author

Listed:
  • Deng, Xin
  • Ali, Hesham
  • Aboelkheir, Heba

Abstract

This study investigates the impact of institutional ownership (IO) stability on firms’ pursuit of exploratory innovation. Utilizing a comprehensive dataset of public U.S. firms from 1990 to 2018, we provide robust evidence that firms with stable IO are more inclined to engage in exploratory innovation. Our analysis identifies three key mechanisms through which IO stability facilitates exploratory innovation: disciplinary, informational, and resource-provision channels. Considering the heterogeneous nature of institutional investors, our extended analysis indicates that the positive effect of stable IO on exploratory innovation is driven by active institutional investors, while the stability of both institutional blockholders and non-blockholders contributes to increased exploratory innovation. Furthermore, we find that the nexus between IO stability and exploratory innovation is more pronounced in firms with concentrated IO. Finally, we find that IO stability also leads to a high level of breakthrough innovation. Overall, our study highlights the critical role that stable IO plays in facilitating firms to overcome learning traps and fostering an environment conducive to exploratory activities within organizations.

Suggested Citation

  • Deng, Xin & Ali, Hesham & Aboelkheir, Heba, 2025. "Unleashing creative potential: The role of stable institutional ownership in exploratory innovation," Research Policy, Elsevier, vol. 54(3).
    • Handle: RePEc:eee:respol:v:54:y:2025:i:3:s0048733324002154
    DOI: 10.1016/j.respol.2024.105166
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    More about this item

    Keywords

    Institutional investors; Institutional ownership stability; Exploratory innovation; Agency theory; Resource-based view;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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