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Social norm differences and innovation: do institutional investors always spur corporate innovation?

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  • Kwack, So Yean
  • Kim, Jinhee

Abstract

This paper examines how culture/social norms affect the role of institutional investors in fostering corporate innovation. We find that foreign institutional ownership has a positive association with innovation output only if these investors are from countries with more creative or less risk-averse cultures, compared to the country in which a firm is incorporated. The positive role of these institutions holds true even when they are non-independent investors, are from weak governance countries, or tend to invest in less-innovative industries. The results suggest that foreign institutions with more innovation-friendly social norms enhance corporate innovation primarily through the social norm channel, rather than through governance mechanisms or selective investment in innovative firms. In other words, these institutions could help a firm to overcome cultural barriers to innovation by bringing positive attitudes toward innovation.

Suggested Citation

  • Kwack, So Yean & Kim, Jinhee, 2025. "Social norm differences and innovation: do institutional investors always spur corporate innovation?," Pacific-Basin Finance Journal, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:pacfin:v:90:y:2025:i:c:s0927538x24003962
    DOI: 10.1016/j.pacfin.2024.102644
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    More about this item

    Keywords

    Innovation; Institutional ownership; Social norms; Culture;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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