What type of shareholders best reward innovation?

Olivier Brossard, Stephanie Lavigne, Claude Dupuy, Mustafa Erdem Sakinc
Work package: 
WP 5
Publication number: 
01 September 2011

This paper examines the relationship between ownership structures of large European companies and their innovative activity in terms of R&D spending. The analysis is performed on a sample of 325 companies belonging to manufacturing and other industries over a 8-year period (2002- 2009). Contrary to the view that institutional investors can have a negative influence on R&D spending, we report a positive impact of these investors on R&D expenditures. Our study also tests the time horizon of investors while considering the portfolio turnover of investors. The results provide evidence of a positive influence of institutional investors and long-run investors on the level of R&D spending. They are consistent with the view that independent long-run investors would motivate and reward managers so that they stimulate adequate long-term investments such as R&D.

Keywords: innovation, institutional ownership, R&D intensity, corporate governance

JEL Codes: C33, G20, G32, O32