Do institutional investors still encourage patent-based innovation after the tech bubble period?

• Published in: Journal of empirical finance 2019-03, Vol.51, p.149-164
• Main Authors: Chang, Hsiu-yun, Liang, Woan-lih, Wang, Yanzhi
• Format: Article
• Language: English
• Subjects: Innovation; Institutional ownership; Patent cost
• ISSN: 0927-5398; 1879-1727
• DOI: 10.1016/j.jempfin.2019.02.003

This paper reexamines the effect of institutional ownership on corporate patent-based innovation. Using an updated sample, we confirm that higher institutional ownership leads to more innovations, including more citations received by patents of a firm, and higher patent generality and originality. However, we find that the impact of institutional ownership on patent-based innovation greatly decreases after the tech bubble bursts and this lower support is driven by both transient and non-transient institutional investors. We do not find that institutional investors intentionally lower their support of patent-based innovation for improving this less efficient innovation. Our results support the contention that the exorbitant litigation cost of patents lowers the incentives for institutional investors to invest in patent-based innovation after 2000. •We reexamines the effect of institutional ownership (IO) on corporate innovation.•The impact of IO on innovation decreases after tech bubble burst.•Both transient and non-transient IOs lower the support on innovation after 2000.•The weaker effect of IOs after 2000 may result from higher patent cost.