South African Journal of Business Management (Aug 2021)
Heterogenic institutional investors and their influence on corporate innovation: Evidence from a transition economy
Abstract
Purpose: The literature lacks a specific mechanism that may help to explain the variation in corporate innovation. This research helps to explain a specific mechanism that affects corporate innovation. Design/methodology/approach: Ordinary Least Square (OLS) regression has been used to analyse the data collected from Chinese manufacturing firms listed on Shenzhen and Shanghai Stock Exchanges from 2007 to 2015. Innovation input has been measured through research and development (RD) expense scaled by total assets, while the number of forward invention patent citations has been used to measure the quality of innovation performance. Findings/results: The results show that pressure-resistance institutional investors (PR institutions) encourage, while pressure-sensitive institutional investors (PS institutions) discourage RD intensity. Additionally, exploring the efficiency logic, results show that PR institutions positively moderate both in SOEs (state-owned enterprises) and non-SOEs, while in contrast, PS institutions negatively moderate only in non-SOEs. Overall, the results support our argument that institutional investors’ business relations act as a mechanism that affects not only their fiduciary responsibilities, but also their proneness to pressure which in turn affects corporate innovation. Practical implications: There is a great need to protect institutional investors from forming business relations with firms in which they invest. This strategy will help institutional investors to perform their valuable role in enhancing corporate innovation. Originality/value: The article contributes to the existing literature by highlighting institutional investors’ heterogenic behaviour. Second, this research highlights institutional investors’ business relations, which affect RD intensity and innovation performance.
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