Journal of Financial and Quantitative Analysis Vol. 52 No. 4 2017

How Do Foreign Institutional Investors Enhance Firm Innovation?

Hoang Luong^1,2,3,4,5; Fariborz Moshirian^1,2,3,4,5; Lily Nguyen^1,2,3,4,5; Xuan Tian^1,2,3,4,5; Bohui Zhang^1,2,3,4,5

¹ La Trobe University · ² University of Washington · ³ UNSW Sydney · ⁴ Chinese University of Hong Kong, Shenzhen · ⁵ Tsinghua University

Abstract

We examine the effect of foreign institutional investors on firm innovation. Using firm-level data across 26 non-U.S. economies between 2000 and 2010, we show that foreign institutional ownership has a positive, causal effect on firm innovation. We further explore three possible underlying mechanisms through which foreign institutions affect firm innovation: Foreign institutions act as active monitors, provide insurance for firm managers against innovation failures, and promote knowledge spillovers from high-innovation economies. Our article sheds new light on the real effects of foreign institutions on firm innovation.

DOI

10.1017/s0022109017000497

Volume

52

Issue

4

Pages

1449-1490

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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