Foreign Portfolio Investment and Corporate Innovation
نویسندگان
چکیده
We investigate whether foreign institutional ownership impacts corporate innovation. Using firm-level data from 30 countries in 2001-2010, we find that higher foreign institutional ownership is associated with more investment in R&D and patents. Using the exogenous increase in foreign institutional holdings that follows a firm’s addition to the Morgan Stanley Capital International World Index, we identify a causal effect of foreign institutional ownership on innovation. The large impact of foreign institutional ownership on R&D productivity is explained by closer monitoring of managers, rather than by reducing career risks. Our findings challenge the conventional wisdom that foreign portfolio investment is hot money, in search of short term profits, at a cost of long-term investment. JEL classification: G31, G32, O32
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