Investor Horizon and Corporate Innovation

An, Ruiwen (2020) Investor Horizon and Corporate Innovation. PhD thesis, University of Liverpool.

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Abstract

Innovation is crucial to corporate long-run growth and competitiveness. There exist gaps in the current literature on investor horizon and corporate innovation. The relationship between institutional investor horizon and innovation is inconclusive, and the role of exit on innovation lacks examination. In this thesis, we first investigate whether longer investor horizon can lead to more innovation. Chapter 3 develops a non-linear model and estimates it using a sample of U.S. public firms. We find an inverted-U relationship between horizon and innovation. This indicates a positive effect of horizon on innovation and the effect diminishes if the horizon is too long. These results call for a study of the negative side of long investment horizon. Chapter 4 argues that worsening price informativeness and lifting agency costs may be two disadvantages of long horizon. It then studies whether exit by investors improves stock price efficiency and whether an increase in price efficiency leads to more innovation. The positive role of exit on price efficiency is supported by empirical evidence. Also, Chapter 4 finds positive relationship between price efficiency and innovation. These findings support that exit has the potential to mitigate information asymmetry and agency costs between managers and investors. Chapter 4 also provides reasons why holding stocks too long may impede innovation. Chapter 5 aims to tackle the contradiction between long horizon and frequent exit, both of which are important to innovation as demonstrated in Chapter 3 and 4. Chapter 5 investigates whether investors could maintain a relatively long investing period while show threat of exit to motivate managers at the same time. Using the triple differences approach, Chapter 5 finds that there is a complementary effect between long horizon and threat of exit in promoting innovation. The positive effect of long horizon on innovation could be strengthened by threat of exit of institutional investors.

Item Type:	Thesis (PhD)
Uncontrolled Keywords:	institutional investor, innovation, horizon, price informativeness, exit
Divisions:	Faculty of Humanities and Social Sciences > School of Management
Depositing User:	Symplectic Admin
Date Deposited:	14 Aug 2020 14:53
Last Modified:	18 Jan 2023 23:59
DOI:	10.17638/03077052
Supervisors:	Cheng, Peng Cook, Gary
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3077052