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Institutional stock ownership and firm innovation: Evidence from China

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  • Chi, Jing
  • Liao, Jing
  • Yang, Jingjing

Abstract

This paper investigates different institutions’ ability to influence firm innovation in the largest emerging market, China. We show that mutual funds’ holdings significantly increase firm innovation, but grey institutional holdings (including insurance companies and pension funds) and Qualified Foreign Institutional Investor (QFII) holdings have less or no significant impact on innovations. We suggest this is due to the high equity holdings and less business connections of mutual funds on (with) portfolio firms in comparison with other institutional investors. Our results are robust after applying different measures of firm innovation and controlling for possible endogeneity. This study sheds new light on the effect of different institutional ownerships on firm innovation in emerging economies. Our results provide further evidence that in comparison with more developed markets, institutional investors in emerging markets can govern invested firms through “threat of exit” even when holding a small proportion of shares in the firms.

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  • Chi, Jing & Liao, Jing & Yang, Jingjing, 2019. "Institutional stock ownership and firm innovation: Evidence from China," Journal of Multinational Financial Management, Elsevier, vol. 50(C), pages 44-57.
    • Handle: RePEc:eee:mulfin:v:50:y:2019:i:c:p:44-57
    DOI: 10.1016/j.mulfin.2019.04.003
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    6. Jinyong Chen & Weijia Shu & Xiaochi Wang & Muhammad Safdar Sial & Mariana Sehleanu & Daniel Badulescu, 2021. "The Impact of Environmental Uncertainty on Corporate Innovation: Empirical Evidence from an Emerging Economy," IJERPH, MDPI, vol. 19(1), pages 1-22, December.
    7. Patrick Velte, 2023. "Which institutional investors drive corporate sustainability? A systematic literature review," Business Strategy and the Environment, Wiley Blackwell, vol. 32(1), pages 42-71, January.
    8. Yuying Gao & Shanyue Jin, 2022. "Corporate Nature, Financial Technology, and Corporate Innovation in China," Sustainability, MDPI, vol. 14(12), pages 1-22, June.
    9. Duojun He & Shenggang Ren & Huixiang Zeng, 2022. "Environmental labeling certification and firm environmental and financial performance: A resource management perspective," Business Strategy and the Environment, Wiley Blackwell, vol. 31(3), pages 751-767, March.
    10. Fu, Lili & Pan, Liyuan & Wu, Fengyun, 2021. "Does passive investment have a positive governance effect? Evidence from index funds ownership and corporate innovation," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 524-545.
    11. Bingrun Xu & Wenli Huang & Lu Li & Lei Lu, 2023. "Mutual fund activism and corporate innovation: Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(S2), pages 2755-2779, June.
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    13. Hedy Jiaying Huang & Ahsan Habib & Sophia Li Sun & Ying Liu & Huiting Guo, 2021. "Financial reporting and corporate innovation: a review of the international literature," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(4), pages 5439-5499, December.
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    More about this item

    Keywords

    Institutions; Mutual funds; Firm innovation; R&D; China;
    All these keywords.

    JEL classification:

    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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