Innovation and institutional ownership
We find that institutional ownership in publicly traded companies is associated with more innovation (measured by cite-weighted patents). To explore the mechanism through which this link arises, we build a model that nests the lazy-manager hypothesis with career-concerns, where institutional owners increase managerial incentives to innovate by reducing the career risk of risky projects. The data supports the career concerns model. First, whereas the lazy manager hypothesis predicts a substitution effect between institutional ownership and product market competition (and managerial entrenchment generally), the career-concern model allows for complementarity. Empirically, we reject substitution effects. 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 owner we find that the effect of institutions on innovation does not appear to be due to endogenous selection.
|Date of creation:||Feb 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Bronwyn H. Hall, 2002. "The Financing of Research and Development," Oxford Review of Economic Policy, Oxford University Press, vol. 18(1), pages 35-51, Spring.
- Bronwyn Hall, 2004. "The financing of research and development," Chapters, in: Financial Systems, Corporate Investment in Innovation, and Venture Capital, chapter 2 Edward Elgar.
- Bronwyn H. Hall, 2003. "The Financing of Research and Development," Finance 0303003, EconWPA.
- Bronwyn H. Hall, 2002. "The Financing of Research and Development," NBER Working Papers 8773, National Bureau of Economic Research, Inc.
- Hall, Bronwyn H., 2002. "The Financing of Research and Development," Department of Economics, Working Paper Series qt34c1c643, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Renée B. Adams & Daniel Ferreira, 2007. "A Theory of Friendly Boards," Journal of Finance, American Finance Association, vol. 62(1), pages 217-250, 02.
- repec:hal:journl:hal-00173191 is not listed on IDEAS
- 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 509-13, June.
When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:25480. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LSERO Manager)
If references are entirely missing, you can add them using this form.