Innovation And Institutional Ownership
The authors 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, they 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. Innovation is the main engine of growth. But what determines a firm's ability to innovate?Innovating requires taking risk and forgoing current returns in the hope of future ones.