Foreign institutional ownership externalities and supplier innovation |
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| Institution: | 1. School of Accounting, Capital University of Economics and Business, Beijing 100070, China;2. University of Rhode Island, Kingston, RI 02879, USA;3. The Center for Accounting and Corporate Finance, Sun Yat-sen University, Guangdong 510275, China;4. Guangzhou University, Guangdong 510006, China;5. Zhongnan University of Economics and Law, Wuhan, Hubei 430073, China;1. Central Bank of Chile, Agustinas 118, 8340454 Santiago, Chile;2. Hunter College & Graduate Center, City University of New York, 695 Park Ave, New York NY 10065, United States;1. Department of Accounting, Antai College of Economics and Management, Shanghai Jiao Tong University, 1954 Huashan Road, Shanghai, 200030, China;2. Department of Accounting, Business School, National University of Singapore, Mochtar Riady Building, BIZ 1, # 07-30, 15 Kent Ridge Drive, 119245, Singapore;3. Institute of Accounting and Finance, Shanghai University of Finance and Economics, No.777 Guoding Road, Shanghai 200433, China;1. KU Leuven and CEPR, Belgium;2. KU Leuven, Belgium |
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| Abstract: | Many emerging markets allow foreign investment as a way to reform domestic markets. Extant studies have found a positive externality on innovation brought forth by foreign direct investment (FDI); however, we know very little about the externality of another form of foreign investment, ownership by foreign institutional investors (FII), on innovation. In this paper, we document one form of FII externality by showing that foreign institutional ownership of the customer firm results in higher supplier innovation. We also show that the FII externality on supplier innovation is stronger when customers have more influence on the suppliers and when the FIIs can facilitate information flow better. Our findings suggest that the real impact of FII can go beyond the underlying firms, and promoting FII may benefit firms, especially smaller firms in emerging countries that do not directly have foreign ownership. |
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