Thursday, October 25, 2018
Paul Borochin, University of Connecticut - School of Business, Jie Yang, Board of Governors of the Federal Reserve System, and Rongrong Zhang, Georgia Southern University explore The Effect of Institutional Ownership Types on Innovation and Competition.
ABSTRACT: In common ownership, the type of the common owner matters. We document two countervailing effects of firms' ownership structures. Higher common ownership by focused, long-term financial institutions promotes innovation as measured by patent applications, well as more exploratory innovation. This effect is reversed for common ownership by diversified, short-termist financial institutions. Diversified, long-term quasi-indexer institutions share some similarities with both. These results contribute to, and potentially help resolve, an ongoing debate about the effects of common institutional ownership on competition.