Hedge Funds and Corporate Innovation

Financial Management, Vol 44, No. 2 (2015), 353-385

50 Pages Posted: 20 Dec 2012 Last revised: 30 Jun 2021

See all articles by Ying Wang

Ying Wang

State University of New York at Albany - School of Business

Jing Zhao

Portland State University - The School of Business

Date Written: April 1, 2014

Abstract

Using NBER patent data and hedge fund holdings in U.S. firms during 1998-2006, we study the effect of hedge fund ownership on corporate innovation. We find that hedge fund ownership promotes both patent quantity and quality, even after controlling for endogeneity. This stimulating effect is more pronounced for hedge fund blockholdings. Hedge funds appear to benefit innovation by enhancing R&D productivity and innovation efficiency rather than increasing R&D input. Consequently, hedge fund ownership increases firm value via its positive effect on innovation. Our study suggests another channel through which hedge funds may enhance firm value, thus contributing to the literature on hedge fund ownership and the debate regarding whether hedge funds should be regulated.

Keywords: Hedge fund, Patent, Innovation, R&D efficiency, Blockholdings, Firm value

JEL Classification: G23, G32, G34, O31, O32

Suggested Citation

Wang, Ying and Zhao, Jing, Hedge Funds and Corporate Innovation (April 1, 2014). Financial Management, Vol 44, No. 2 (2015), 353-385, Available at SSRN: https://ssrn.com/abstract=2191744

Ying Wang (Contact Author)

State University of New York at Albany - School of Business ( email )

1400 Washington Ave.
Albany, NY 12222
United States

Jing Zhao

Portland State University - The School of Business ( email )

631 SW Harrison St.
Portland, OR 97201
United States

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