In brief: Two cheers for Anglo-Saxon financial markets?
Philippe Aghion,
John van Reenen and
Luigi Zingales
CentrePiece - The magazine for economic performance from Centre for Economic Performance, LSE
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.
Keywords: Innovation; institutional ownership; career concerns; R&D; productivity (search for similar items in EconPapers)
JEL-codes: G20 G32 O31 O32 O33 (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-bec and nep-ino
References: Add references at CitEc
Citations:
Downloads: (external link)
https://cep.lse.ac.uk/pubs/download/cp372.pdf (application/pdf)
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:cep:cepcnp:372
Access Statistics for this paper
More papers in CentrePiece - The magazine for economic performance from Centre for Economic Performance, LSE
Bibliographic data for series maintained by ().