American Economic Review: Vol. 103 No. 1 (February 2013)


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Innovation and Institutional Ownership

Article Citation

Aghion, Philippe, John Van Reenen, and Luigi Zingales. 2013. "Innovation and Institutional Ownership." American Economic Review, 103(1): 277-304.

DOI: 10.1257/aer.103.1.277


We find that greater institutional ownership is associated with more innovation. To explore the mechanism, we contrast the "lazy manager" hypothesis with a model where institutional owners increase innovation incentives through reducing career risks. The evidence favors career concerns. First, we find complementarity between institutional ownership and product market competition, whereas the lazy manager hypothesis predicts substitution. Second, CEOs are less likely to be fired in the face of profit downturns when institutional ownership is higher. Finally, using instrumental variables, policy changes, and disaggregating by type of institutional owner, we argue that the effect of institutions on innovation is causal. (JEL G23, G32, L25, M10, O31, O34)

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Aghion, Philippe (Harvard U)
Van Reenen, John (CEP, London School of Economics and Political Science)
Zingales, Luigi (U Chicago)

JEL Classifications

G23: Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
L25: Firm Performance: Size, Diversification, and Scope
M10: Business Administration: General
O31: Innovation and Invention: Processes and Incentives
O34: Intellectual Property Rights

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