Myopic Investor or Active Monitor? The Role of Institutional Investors in Corporate Innovation

Abstract

We examine the role of institutional investors in firms’ innovation strategies. We find that although institutional shareholding is positively related to the likelihood of patenting, it is not related to firms’ exploratory innovation activities. Moreover, the presence of a block institutional holder or the holding by long-term investors has strong negative effect on exploratory innovations. Our study provides new insights to the role of institutional investors in firms’ innovation decisions.