Innovation and Institutional Ownership

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. Fi...

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Bibliographic Details
Published inThe American economic review Vol. 103; no. 1; pp. 277 - 304
Main Authors Aghion, Philippe, Van Reenen, John, Zingales, Luigi
Format Journal Article
LanguageEnglish
Published Nashville American Economic Association 01.02.2013
Subjects
Business innovation
Business management
Business ownership
Careers
Chief executive officers
Competition
Economic competition
Economic models
Economic statistics
Economic theory
Equity funds
Financial management
Hypotheses
Hypothesis
Incentives
Innovation
Innovations
Institutional investments
Investors
Management theory
Managers
Market analysis
Market competition
Ownership
Policy analysis
Product innovation
Profit
R&D
Research & development
Standard error
Studies
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Summary: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.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
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ISSN:0002-8282
1944-7981
DOI:10.1257/aer.103.1.277