Do Institutional Investors Aleviate Agency Costs in R&D Investment Decisions?

Ricky William Scott

Accounting and Finance Research, 2017, vol. 6, issue 3, 24

Abstract: This study tests whether institutional investors encourage R&D investment in firms with potential agency problems. Firm and year fixed effect regressions and difference-GMM regressions are used to examine the effect of changes in institutional investor levels to subsequent changes in R&D investment levels. Increased institutional ownership leads to increased R&D investment and this relationship is stronger in firms more susceptible to agency problems. Agency-based free cash flow theory predicts that institutional investors will encourage R&D investment in firms with good investment opportunities, but they will not encourage R&D investment simply because a firm has higher free cash flow. My results support this prediction indicating that institutional investors help to control agency problems in R&D investment decisions. The results in this paper indicate that this may lead to a decrease in agency costs in R&D decisions, thus benefiting institutional and non-institutional shareholders.

Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.sciedupress.com/journal/index.php/afr/article/download/11631/7275 (application/pdf)
https://www.sciedupress.com/journal/index.php/afr/article/view/11631 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jfr:afr111:v:6:y:2017:i:3:p:24

Access Statistics for this article

More articles in Accounting and Finance Research from Sciedu Press Contact information at EDIRC.
Bibliographic data for series maintained by Sciedu Press ().