Can Institutional Ownership Promote Corporate Innovation?

Innovation determines the market value,comparative advantage and return on investment of an enterprise,and is the fundamental driving force for the development.Whether to carry out innovation affects the long-term development of an enterprise,and is the key operating decision to help it obtain greater benefits.In 2001,China began the introduction of institutional investors.With the change of time,institutional investors develop rapidly.By the end of 2017,in the Shanghai stock exchange listed companies,the market value held by institutional investors accounts for 15.58% of the total market value.In the capital market,institutional investors occupy a very important position,and have significant impact on corporate governance.However,the existing studies about the relationship between institutional investors and corporate innovation did not come to an agreement.Most of these literature focuses on institutional investors' ownership,less of them focuses on other characteristics of institutional investors.In 2005,China began to carry out the reform of non-tradable shares,which further reduced the concentration of corporate shares.The total market value held by institutional investors increased significantly,giving them a greater say in corporate governance.Financing constraint is a serious problem faced by corporate innovation.Previous studies do not consider whether financing constraint is an intermediary mechanism of the relationship between institutional ownership and corporate innovation.In China,Enterprises with different property rights have different operating mechanisms.Therefore,property rights may affect the relationship between institutional ownership and corporate innovation.Executive shareholding is considered as a key measure to solve the agency problem,which may be beneficial to corporate innovation and affect the relationship between institutional ownership and corporate innovation.According to the life cycle theory,when enterprises are in different life cycles,the characteristics of production,operation and organization of enterprises are greatly different,which affects the role of institutional investors.Therefore,this paper studies the relationship between institutional ownership and corporate innovation after the reform of non-tradable shares,whether the financing constraint is its intermediary mechanism,whether the nature of property rights,the shareholding of executives and the life cycle of enterprises adjust the relationship between them.It also studies the relationship between the number of institutional investors,heterogeneity and enterprise innovation.Relevant data of China's a-share listed companies in Shanghai and Shenzhen from 2007 to 2017 are the sample sources of this paper.Based on the obtained data,the above problems are empirically tested.After the completion of the reform of non-tradable shares,(1)There is a significant positive correlation between institutional ownership and corporate innovation,that is,institutional ownership promotes corporate innovation.(2)The institutional ownership is negatively relevant with financing constraints.Financing constraints is significantly negative correlated with the corporate innovation,institutional ownership significant positive correlation with the corporate innovation,suggests that the financing constraint was part of the mediation mechanism.(3)Further study found that in state-owned enterprises,there is no significant correlation between institutional ownership and corporate innovation.In non-state enterprises,there is a significant positive correlation,which indicates that property rights significantly influence the relationship between institutional ownership and the corporate innovation.(4)Executives shareholding adjust the positive correlation between institutional ownership and corporate innovation.(5)After considering the enterprise life cycle,in mature companies,institutional ownership has significant positive correlation with the corporate innovation,when enterprise is in growth or recession,there is no significant correlation between them,namely in mature companies,institutional ownership can promote innovation input,but in the growth and decline enterprise institutional ownership can't promote corporate innovation.(6)It was found that the pressure resistance institutional ownership has significant positive correlation with the corporate innovation,pressure sensitive institutional ownership is negative related with the corporate innovation,namely the pressure resistance type of institutional ownership promote corporate innovation,pressure sensitive institutional ownership restrain corporate innovation.(7)In addition,there is a significant positive correlation between the number of institutional investors and corporate innovation.Therefore,the number of institutional investors promotes corporate innovation.The main contributions of this paper are as follows:(1)After the reform of nontradable shares,it has great practical meaning to explore ways and means for institutional ownership to influence corporate innovation.It is of great theoretical and practical significance to improve the governance of institutional investors and promote the innovation level of enterprises.(2)Although some literatures have discussed the relationship between institutional ownership and corporate innovation,there is no consistent conclusion has been reached.The reason may be sample selection,variable measurement,endogenous problems and other aspects of processing differences.This paper selected China's Shanghai and Shenzhen a-share listed companies from 2007 to 2017 after the reform of non-tradable shares as research samples,adopted the shareholding ratio,number of institutional investors and heterogeneity to study the impact on corporate innovation,and revealed the mechanism and path.It enriches the literature on the governance role of institutional investors and the influencing factors of corporate innovation.(3)The existing studies on the relationship between institutional ownership and corporate innovation seldom consider the property nature of enterprise,executive shareholding and the regulatory role of enterprise life cycle.It also fails to consider the specific mediation mechanism.This paper found that the nature of enterprise property rights,executive shareholding and enterprise life cycle significantly regulated the relationship between institutional ownership and corporate innovation.Financing constraint is a partial intermediary mechanism that institutional ownership effect corporate innovation.Thus,the literature on the governance role of institutional ownership and executive shareholding has been enriched,and the research on the relationship between institutional ownership and enterprise innovation has been further expanded.