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Institutional investors' ownership stability and firms' innovation

Institutional investors' ownership stability and firms' innovation
Institutional investors' ownership stability and firms' innovation
We examine the relationship between various measures of institutional ownership and investee firms' level of innovation as measured by the number of patents and patent citations. We find a direct association between the stability in the equity ownership of institutional investors and their investee firms' level of innovation. Our main finding would serve to reassure managers that they benefit from the support of long-term-oriented institutional investors who adopt a “buy and hold” investment philosophy as opposed to a “trading” philosophy. We also examine the association between the proportion of a firm's equity held by institutional investors and its innovation and find that it relies on the type of the investor. For instance, while there exists a positive association between mutual funds and firm innovation yet, the association is only positive for funds that actively manage their portfolios different from their benchmark index. Next, pressure-sensitive institutional investors' shareholdings are positively correlated with firm innovation; however, it is not necessarily the case for all the pressure-insensitive investors.
0148-2963
10-22
Sakaki, Hamid
469ee780-9237-4969-950c-6b96c2113d42
Jory, Surendranath
2624eb24-850a-48f6-b3c6-c96749b87322
Sakaki, Hamid
469ee780-9237-4969-950c-6b96c2113d42
Jory, Surendranath
2624eb24-850a-48f6-b3c6-c96749b87322

Sakaki, Hamid and Jory, Surendranath (2019) Institutional investors' ownership stability and firms' innovation. Journal of Business Research, 103, 10-22. (doi:10.1016/j.jbusres.2019.05.032).

Record type: Article

Abstract

We examine the relationship between various measures of institutional ownership and investee firms' level of innovation as measured by the number of patents and patent citations. We find a direct association between the stability in the equity ownership of institutional investors and their investee firms' level of innovation. Our main finding would serve to reassure managers that they benefit from the support of long-term-oriented institutional investors who adopt a “buy and hold” investment philosophy as opposed to a “trading” philosophy. We also examine the association between the proportion of a firm's equity held by institutional investors and its innovation and find that it relies on the type of the investor. For instance, while there exists a positive association between mutual funds and firm innovation yet, the association is only positive for funds that actively manage their portfolios different from their benchmark index. Next, pressure-sensitive institutional investors' shareholdings are positively correlated with firm innovation; however, it is not necessarily the case for all the pressure-insensitive investors.

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Accepted/In Press date: 31 May 2019
e-pub ahead of print date: 12 June 2019

Identifiers

Local EPrints ID: 431888
URI: http://eprints.soton.ac.uk/id/eprint/431888
ISSN: 0148-2963
PURE UUID: 8ef81af6-ead0-4834-9360-55e510db4872
ORCID for Surendranath Jory: ORCID iD orcid.org/0000-0002-8265-0001

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Date deposited: 20 Jun 2019 16:30
Last modified: 28 Apr 2022 04:11

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Author: Hamid Sakaki

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