Innovation and Institutional Ownership
American Economic Review
vol. 103,
no. 1, February 2013
(pp. 277-304)
Abstract
We find that greater institutional ownership is associated with more innovation. To explore the mechanism, we contrast the "lazy manager" hypothesis with a model where institutional owners increase innovation incentives through reducing career risks. The evidence favors career concerns. First, we find complementarity between institutional ownership and product market competition, whereas the lazy manager hypothesis predicts substitution. Second, CEOs are less likely to be fired in the face of profit downturns when institutional ownership is higher. Finally, using instrumental variables, policy changes, and disaggregating by type of institutional owner, we argue that the effect of institutions on innovation is causal. (JEL G23, G32, L25, M10, O31, O34)Citation
Aghion, Philippe, John Van Reenen, and Luigi Zingales. 2013. "Innovation and Institutional Ownership." American Economic Review, 103 (1): 277-304. DOI: 10.1257/aer.103.1.277Additional Materials
JEL Classification
- G23 Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L25 Firm Performance: Size, Diversification, and Scope
- M10 Business Administration: General
- O31 Innovation and Invention: Processes and Incentives
- O34 Intellectual Property Rights