American Economic Review Vol. 103 No. 1 2013

Innovation and Institutional Ownership

Philippe Aghion¹; John Van Reenen²; Luigi Zingales³

¹ Department of Economics, Harvard University, Littauer Center, 1805 Cambridge Street, Cambridge, MA 02138, and CEPR. · ² Centre for Economic Performance, London School of Economics, Houghton Street, London, WC2A 2AE, United Kingdom. · ³ Chicago Booth Business School, University of Chicago, 5807 South Woodlawn Avenue, Chicago, IL 60637, and NBER.

Abstract

We find that greater institutional ownership is associated with more innovation. To explore the mechanism, we contrast the “lazy manager” hypothesis with a model where institutional owners increase innovation incentives through reducing career risks. The evidence favors career concerns. First, we find complementarity between institutional ownership and product market competition, whereas the lazy manager hypothesis predicts substitution. 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 institutional owner, we argue that the effect of institutions on innovation is causal.

DOI

10.1257/aer.103.1.277

Volume

103

Issue

1

Pages

277-304

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

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