Innovation and institutional ownership

Aghion, Philippe ORCID: 0000-0002-9019-1677, Van Reenen, John ORCID: 0000-0001-9153-2907 and Zingales, Luigi (2013) Innovation and institutional ownership. American Economic Review, 103 (1). pp. 277-304. ISSN 0002-8282

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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.

Item Type:	Article
Official URL:	http://www.aeaweb.org/aer/index.php
Additional Information:	© 2013 American Economic Association
Divisions:	Centre for Economic Performance Economics
Subjects:	H Social Sciences > HF Commerce H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
JEL classification:	O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O31 - Innovation and Invention: Processes and Incentives O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O33 - Technological Change: Choices and Consequences; Diffusion Processes G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O32 - Management of Technological Innovation and R&D G - Financial Economics > G2 - Financial Institutions and Services > G20 - General
Date Deposited:	20 Feb 2013 14:25
Last Modified:	23 Apr 2024 21:33
URI:	http://eprints.lse.ac.uk/id/eprint/46869

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