Style investing and firm innovation |
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| Institution: | 1. Auckland University of Technology, 55 Wellesley St E, Auckland, 1010, New Zealand;2. ESCP Europe, 79 avenue de la République 75543 Paris Cedex 11, France;3. Labex ReFi, the Laboratory of Excellence on Financial Regulation, Paris, France;1. Accounting and Finance, Adelaide Business School, The University of Adelaide, Level 12, 10 Pulteney Street, Adelaide, SA 5005, Australia;2. Banking and Finance, UNSW Business School, UNSW Sydney, NSW 2052, Australia;1. Research Center, Shenzhen Capital Group Co. Ltd., Shenzhen 518048, China;2. PBC School of Finance, Tsinghua University, Beijing 100083, China;3. Sun Yat-sen Business School, Sun Yat-sen University, Guangzhou 510275, China;4. School of Banking and Finance, University of International Business and Economics, Beijing 100029, China;5. UQ Business School, University of Queensland, Brisbane, 4072, Australia;1. ICMA Centre, Henley Business School, University of Reading, UK;2. Cass Business School, City University, UK;1. School of Business, University of Connecticut, 2100 Hillside Road, Unit 1041, Storrs, CT 06269, United States;2. Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, DC 20551, United States |
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| Abstract: | We document that transient, dedicated and quasi-indexed institutional investors exhibit a high degree of within-group heterogeneity with respect to their investment styles (i.e., growth, value, and balanced). We find that growth institutional investors enhance firm innovation in terms of R&D expenditures, R&D intensity, quantity and quality of patents and patent radicalness while value institutional investors impede innovation. Balanced investors have no significant association with innovation. Findings are consistent with style investing literature that growth and value styles are substitutes. Using investment styles, we present evidence that reconcile literature’s mixed findings on how transient and dedicated investors affect R&D and innovation, and why quasi-indexed investors, the largest group among all investors, have an insignificant effect. We also show that the effect of institutional investors depends on the firm’s relative level of innovativeness. |
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| Keywords: | Innovation Institutional ownership Style investing R&D Patents |
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