Innovation, Institutional Ownerships and Board Diversity

Phan, Thi-Thanh and Yu, Hai-Chin, Innovation, Institutional Ownerships and Board Diversity (September 3, 2022). Review of Quantitative Finance and Accounting, 59, 4, 1647–1693 (2022). https://link.springer.com/article/10.1007/s11156-022-01102-7

Posted: 6 Jan 2023

See all articles by Thi-Thanh Phan

Thi-Thanh Phan

National Chengchi University

Hai-Chin Yu

Chung Yuan Christian University

Date Written: December 12, 2022

Abstract

This work investigates the relationships between institutional ownership, board diversity, and corporate innovation in US-listed firms. Institutional investors play a crucial role in a firm’s operation and exert considerable influence on the efficient monitoring of innovative investment. Theory predicts that institutional ownership has a positive effect on innovation investment. However, we find that active institutional investors drove this positive relationship. For those passive institutional investors, this impact is negative. However, a banker on the board can change the effect from negative to positive for passive institutional investors. Firms with female directors, a high presence of audit committees, or a large proportion of ethnic minority directors on board have a significant and positive impact on innovation, including R&D investments and the number of patents. The enactment of Sarbanes–Oxley Act (SOX) in 2002 made information more transparent to investors and narrowed the gap between active and passive institutional investors on innovation. The findings are robust to addressing endogeneity concerns and causal relationships using the IV-2SLS, Difference-in-Differences approaches, and alternative methodology.

Keywords: Institutional ownerships · Board diversity · Innovation · ESG · Sarbanes–Oxley Act

JEL Classification: G28 · G32 · O31 · H41

Suggested Citation

Phan, Thi-Thanh and Yu, Hai-Chin, Innovation, Institutional Ownerships and Board Diversity (December 12, 2022). Phan, Thi-Thanh and Yu, Hai-Chin, Innovation, Institutional Ownerships and Board Diversity (September 3, 2022). Review of Quantitative Finance and Accounting, 59, 4, 1647–1693 (2022). https://link.springer.com/article/10.1007/s11156-022-01102-7, Available at SSRN: https://ssrn.com/abstract=4300153

Thi-Thanh Phan (Contact Author)

National Chengchi University ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623
Taiwan
+886 2 2939 3091 ext. 88076 (Phone)

Hai-Chin Yu

Chung Yuan Christian University ( email )

22 Pu-Jen,Pu-chung Li
Chung-Li, Taiwan 32023
Taiwan
886 3 265 5209 (Phone)
886 3 265 5299 (Fax)

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