How Do Foreign Institutional Investors Enhance Firm Innovation?

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming

Financial Management Association Annual Meeting (2015)

Kelley School of Business Research Paper No. 2014-04

Entrepreneurial Finance and Innovation Conference (2014)

Financial Integrity Research Network Research Topic Group Meeting in Corporate Finance (2013)

86 Pages Posted: 17 Mar 2014 Last revised: 24 May 2017

Hoang Luong

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

Fariborz Moshirian

Institute of Global Finance, UNSW Business School

Lily Nguyen

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

Xuan Tian

Tsinghua University - PBC School of Finance

Bohui Zhang

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

Date Written: December 2016

Abstract

We examine the effect of foreign institutional investors on firm innovation. Using firm-level data across 26 non-U.S. economies between 2000 and 2010, we show that foreign institutional ownership has a positive, causal effect on firm innovation. We further explore three possible underlying mechanisms through which foreign institutions affect firm innovation: foreign institutions act as active monitors, provide insurance for firm managers against innovation failures, and promote knowledge spillovers from high-innovation economies. Our paper sheds new light on the real effects of foreign institutions on firm innovation.

Keywords: Foreign institutional investors; Firm innovation; Monitoring; Tolerance for failure; Knowledge spillovers

JEL Classification: G23; G32; G34

Suggested Citation

Luong, Hoang and Moshirian, Fariborz and Nguyen, Lily and Tian, Xuan and Zhang, Bohui, How Do Foreign Institutional Investors Enhance Firm Innovation? (December 2016). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming; Financial Management Association Annual Meeting (2015); Kelley School of Business Research Paper No. 2014-04; Entrepreneurial Finance and Innovation Conference (2014); Financial Integrity Research Network Research Topic Group Meeting in Corporate Finance (2013). Available at SSRN: https://ssrn.com/abstract=2409909 or http://dx.doi.org/10.2139/ssrn.2409909

Hoang Luong

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

Sydney, NSW 2052
Australia

HOME PAGE: http://www.banking.unsw.edu.au/nps/servlet/portalservice?GI_ID=System.LoggedOutInheritableArea&maxWn

Fariborz Moshirian

Institute of Global Finance, UNSW Business School ( email )

Sydney, NSW 2052
Australia
+61 2 93855859 (Phone)
+61 2 94877519 (Fax)

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)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

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

Paper statistics

Downloads
912
Rank
19,336
Abstract Views
3,840