Monitoring Institutional Ownership and Corporate Innovation

Document Type

Article

Publication Date

12-2022

Publisher

Elsevier

Source Publication

Journal of Empirical Finance

Source ISSN

0927-5398

Original Item ID

10.1016/j.jempfin.2022.09.004

Abstract

We document a positive effect of monitoring institutional ownership on firm innovation after controlling for traditional measures of institutional ownership. We further find that monitoring institutions enhance firm innovation by: (1) incentivizing CEO risk-taking and reducing intense board monitoring, (2) alleviating agency problems, (3) attenuating managerial career concerns, and (4) mitigating corporate misvaluation. Overall, our findings highlight the importance of considering institutions’ monitoring incentives when examining the outcomes of their portfolio firms’ activities associated with high information asymmetry.

Comments

Journal of Empirical Finance, Vol. 69 (December 2022): 144-165. DOI.

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