Ownership Structure and Innovation Performance: The Mediating Mechanism of External Cooperation

Abstract

To contribute to the literature examining the influence of ownership structure and firm innovation performance, our study examines how institutional ownership and family ownership influences innovation performance of a firm, as measured by both the quantity and quality of the innovation outputs of the firm. Specifically, we examine the extent to which external cooperation with other firms mediate the relationship between ownership structure and firm innovation performance. We find that firms with high levels of institutional investors, especially foreign institutional investors, on average, have higher innovation performance, and the amount of external cooperation the firm engaged in mediates the relationship between institutional ownership and innovation performance. This research suggests that the presence of institutional investors creates implicit incentives for CEOs to exert effort toward increasing external cooperation that will further improve innovation performance.

Keywords: Ownership structure; external cooperation; innovation performance.