Access Restriction

Author Aghion, Philippe ♦ Van Reenen, John ♦ Zingales, Luigi
Source EconStor
Content type Text
Publisher Fondazione Eni Enrico Mattei (FEEM)
File Format PDF
Language English
Subject Domain (in DDC) Social sciences ♦ Economics
Subject Keyword Career Concerns ♦ Innovation ♦ Institutional Ownership ♦ Productivity and R&D ♦ Financial Institutions and Services: General ♦ Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ♦ Innovation and Invention: Processes and Incentives ♦ Management of Technological Innovation and R&D ♦ Technological Change: Choices and Consequences; Diffusion Processes
Abstract We find that institutional ownership in publicly traded companies is associated with more innovation (measured by cite-weighted patents). To explore the mechanism through which this link arises, we build a model that nests the lazy-manager hypothesis with career-concerns, where institutional owners increase managerial incentives to innovate by reducing the career risk of risky projects. The data supports the career concerns model. First, whereas the lazy manager hypothesis predicts a substitution effect between institutional ownership and product market competition (and managerial entrenchment generally), the career-concern model allows for complementarity. Empirically, we reject substitution effects. 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 owner we find that the effect of institutions on innovation does not appear to be due to endogenous selection.
Part of series Nota di Lavoro x2010,99
Learning Resource Type Article
Publisher Date 2010-01-01
Publisher Place Milano
Rights Holder