Monitoring Institutional Ownership and Corporate Innovation

48 Pages Posted: 15 Oct 2020

See all articles by Steve Miller

Steve Miller

University of South Florida - Muma College of Business

Bin Qiu

Missouri Western State University, Craig School of Business

Bin Wang

Marquette University - College of Business Administration

Tina Yang

University of South Florida - Muma College of Business

Date Written: October 5, 2020

Abstract

In this study, we examine the role of monitoring institutional investors in firm innovation. Following Fich, Harford and Tran (2015), we define monitoring institutions as those whose holding value in a firm is among the top 10% of holdings in the institution’s portfolio. We document a positive effect of monitoring institutional ownership on firm innovation after controlling for traditional measures of institutional ownership. The positive effect is more pronounced when monitoring institutions are more diversified. We further find that monitoring institutions enhance firm innovation by: (1) increasing failure tolerance and CEO risk-taking incentives, and (2) reducing intense board monitoring, managerial career concerns, and diversion of corporate resources. Overall, the evidence shows that monitoring institutions are instrumental in promoting firm innovation.

Keywords: Monitoring, Institutional investors, Innovation, Patents, Citations

JEL Classification: G30, O31

Suggested Citation

Miller, Steve and Qiu, Bin and Wang, Bin and Yang, Tina, Monitoring Institutional Ownership and Corporate Innovation (October 5, 2020). Available at SSRN: https://ssrn.com/abstract=3705037 or http://dx.doi.org/10.2139/ssrn.3705037

Steve Miller

University of South Florida - Muma College of Business ( email )

Sarasota, FL 33620
United States

Bin Qiu (Contact Author)

Missouri Western State University, Craig School of Business ( email )

4525 Downs Drive Popplewell Hall
Saint Joseph, MO 64506
United States
8162715954 (Phone)

HOME PAGE: http://www.missouriwestern.edu

Bin Wang

Marquette University - College of Business Administration ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

Tina Yang

University of South Florida - Muma College of Business ( email )

140 7th Ave S
St. Petersburg, FL 33701
United States
7278734568 (Phone)

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