The effect of institutional ownership on firm innovation: Evidence from Chinese listed firms

摘要

Monitoring by institutional investors can act as an important mechanism to promote firm innovation. By investigating the patenting behavior of Chinese listed firms between 2002 and 2011, we find that the presence of institutional investors enhances firm innovation. Consistent with this monitoring view, we further find that (1) the effect of institutional investors on firm patenting mainly comes from mutual funds; (2) the effect is more pronounced when product market competition is more intense; (3) the effect exists among private- and minority state-owned enterprises, but not among majority state-owned enterprises. The above findings remain robust when innovation quality is examined.