This study empirically examines the relationship between institutional ownership and innovation activity in the unique setting of the clinical trials for US biopharmaceutical companies. We used multiple statistical techniques in the period from 1990 through 2006 for firms in the biopharmaceutical industry to examine this relationship. Contrary to the widely believed relationship discussed in the literature, our findings suggest that institutional investors vary in their reactions to innovative progress. Specifically, we find that institutional investors with a long-term investment horizon (i.e., dedicated owners) increase their holdings of a firm’s equity as the number of the firm’s products increases in phases I and II of FDA clinical trials. These findings are robust for heteroskedasticity and autocorrelation as well as for different operationalizations of the change of institutional ownership.
We appreciate helpful comments from Maria Goranova, Scott Hsu, Richard Priem, Valeriy Sibilkov, participants at the 1st Paris Financial Management Conference, and the 2013 Academy of Management Annual Meeting. The first author would like to extend his sincere appreciation to the Deanship of Scientific Research at King Saud University for its funding this Research Group No. (RG#364).
Alshwer, A. and Levitas, E. (2014), "How Innovation Can Affect Ownership Structure: The Case of Transient and Dedicated Institutional Investors", Finance and Strategy (Advances in Strategic Management, Vol. 31), Emerald Group Publishing Limited, pp. 291-319. https://doi.org/10.1108/S0742-332220140000031008Download as .RIS
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