How Do Foreign Institutional Investors Enhance Firm Innovation?
Hoang Luong (),
Xuan Tian and
Journal of Financial and Quantitative Analysis, 2017, vol. 52, issue 4, 1449-1490
We examine the effect of foreign institutional investors on firm innovation. Using firm-level data across 26 non-U.S. economies between 2000 and 2010, we show that foreign institutional ownership has a positive, causal effect on firm innovation. We further explore three possible underlying mechanisms through which foreign institutions affect firm innovation: Foreign institutions act as active monitors, provide insurance for firm managers against innovation failures, and promote knowledge spillovers from high-innovation economies. Our article sheds new light on the real effects of foreign institutions on firm innovation.
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