The Effects of Owner Idendity and Financial Markets on R&D Investments: A Study of Western European Firms

Abstract

In this paper we theoretically analyze and empirically test the influence of stock market investors, the degree of ownership concentration and the identity of large shareholders on firm-level R&D investments. Our analysis is based on a unique dataset of 1,000 firms publicly traded in six European countries (France, Germany, Italy, Norway, Sweden and the UK). Controlling for industry- and firm-level effects, our findings show that a high share of institutional investors within national financial markets is negatively associated with widely held corporations' R&D investments. Moreover, higher shares held by families and financial institutions in a firm's ownership are negatively associated with R&D investments. Results are robust to potential sample selection biases due to firms' discretional R&D disclosure.

Keywords: Corporate Governance, Ownwership Structure, R&D, Innovation, Market Value

JEL Classification: G15, G32, O31, O33