Ownership and Innovation: Evidence from Switzerland

Abstract

Both theoretical and empirical studies provide mixed predictions when looking at the impact of corporate ownership on innovation. Contributing to this discussion, this paper conducts a causality test of the relation between the ownership concentration of firms and their innovation, measured by patents and patent citations. Using a sample that contains annual data of about 150 companies over the 1990-2010 period, we address potential endogeneity concerns using the introduction of the Swiss takeover law as an instrumental variable. In line with the “hold-up” view, we find higher ownership concentration leading to more firm innovation.

Keywords: Takeover Law, Innovation, Patents, R&D, Corporate Ownership.

JEL Classification: D21, G32, G34, K22, O31