Abstract

http://ssrn.com/abstract=2409909
 


 



Do Foreign Institutional Investors Enhance Firm Innovation?


Luong Hoang Luong


University of New South Wales (UNSW) - School of Banking and Finance

Fariborz Moshirian


University of New South Wales (UNSW) - Institute of Global Finance, Australian School of Business

Huong Giang (Lily) Nguyen


La Trobe University - La Trobe Business School - Department of Finance; Financial Research Network (FIRN)

Xuan Tian


Indiana University - Kelley School of Business - Department of Finance

Bohui Zhang


University of New South Wales (UNSW) - School of Banking and Finance; Financial Research Network (FIRN)

March 16, 2014

Kelley School of Business Research Paper No. 2014-04

Abstract:     
We examine the effect of foreign institutional investors on firm innovation. Using firm-level data across 26 non-U.S. economies for the 2000-2010 period, we show a positive relation between foreign institutional ownership and firm innovation. To establish causality, we use a difference-in-differences approach that relies on plausibly exogenous variation in foreign institutional ownership generated by a quasi-natural experiment, as well as an instrumental variable approach. Our identification tests suggest a positive, causal effect of foreign institutional ownership on innovation. We further explore three possible underlying mechanisms through which foreign institutional investors promote innovation: foreign institutions appear to act as active monitors, to provide insurance against innovation failures to firm managers, and to promote technology transfers from high-innovation countries. We provide new insights into the real effects of foreign institutions.

Number of Pages in PDF File: 47

Keywords: Firm innovation; R&D investment; Institutional investors; Foreign investment

JEL Classification: G23; G32; G34

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Date posted: March 17, 2014  

Suggested Citation

Luong, Luong Hoang and Moshirian, Fariborz and Nguyen, Huong Giang (Lily) and Tian, Xuan and Zhang, Bohui, Do Foreign Institutional Investors Enhance Firm Innovation? (March 16, 2014). Kelley School of Business Research Paper No. 2014-04. Available at SSRN: http://ssrn.com/abstract=2409909 or http://dx.doi.org/10.2139/ssrn.2409909

Contact Information

Luong Hoang Luong
University of New South Wales (UNSW) - School of Banking and Finance ( email )
Sydney, NSW 2052
Australia

Fariborz Moshirian
University of New South Wales (UNSW) - Institute of Global Finance, Australian School of Business ( email )
Sydney, NSW 2052
Australia
+61 2 93855859 (Phone)
+61 2 94877519 (Fax)

Huong Giang (Lily) Nguyen
La Trobe University - La Trobe Business School - Department of Finance ( email )
Melbourne, VIC, 3086
Australia
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

Xuan Tian (Contact Author)
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. Tenth Street
Bloomington, IN 47405
United States
812-8553420 (Phone)
824-8555875 (Fax)
HOME PAGE: http://kelley.iu.edu/tianx

Bohui Zhang
University of New South Wales (UNSW) - School of Banking and Finance ( email )
Australian School of Business
Sydney NSW, 2052
Australia
61293855834 (Phone)
61293856347 (Fax)
HOME PAGE: http://www.banking.unsw.edu.au/nps/servlet/portalservice?GI_ID=System.LoggedOutInheritableArea&maxWn

Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

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