Do Transient Institutional Investors Really Impede Innovation? Evidence from Shareholder Distraction

35 Pages Posted: 7 Aug 2023

See all articles by Cheng "Jason" Jiang

Cheng "Jason" Jiang

Boston College

Kose John

New York University (NYU) - Leonard N. Stern School of Business

Jun Wang

University of Manitoba

Jingyu Zhang

Queen's University - Smith School of Business

Date Written: August 3, 2023

Abstract

This paper challenges the stereotypical view that transient institutional investors, characterized by short-term horizons, exacerbate managerial myopia and harm corporate innovation. Our evidence implies that the results of previous studies may have been biased due to endogeneity issues. To address this, a novel measure of shareholder distraction is introduced. We show that an exogenous decline in the monitoring quality of distracted transient institutional shareholders is associated with decreased innovation. This effect is more pronounced when alternative monitoring forces are weaker. The findings suggest that transient institutional investors provide effective monitoring, which acts as a channel that helps alleviate managerial myopia and promote innovation, confirming the theoretical work of Edmans (2009). The validity of our findings is further confirmed through a rich battery of robustness tests.

Keywords: transient institutional investor, shareholder distraction, monitoring, corporate innovation

JEL Classification: G23, G30, O30

Suggested Citation

Jiang, Cheng and John, Kose and Wang, Jun and Zhang, Jingyu, Do Transient Institutional Investors Really Impede Innovation? Evidence from Shareholder Distraction (August 3, 2023). Available at SSRN: https://ssrn.com/abstract=4531093 or http://dx.doi.org/10.2139/ssrn.4531093

Cheng Jiang (Contact Author)

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Kose John

New York University (NYU) - Leonard N. Stern School of Business ( email )

Jun Wang

University of Manitoba ( email )

501 F.A. Bldg
Winnipeg R3T 5V4, Manitoba R3T 5V5
Canada

Jingyu Zhang

Queen's University - Smith School of Business ( email )

Goodes Hall
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
123
Abstract Views
435
Rank
434,394
PlumX Metrics