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Do Long-Term Institutional Investors Foster Corporate Innovation?


This paper examines the effect of institutional investors’ investment horizons on firms’ innovation activities. We conjecture that the presence of long-term institutional investors mitigates managerial myopia, prompting firms to produce more corporate innovation outputs. Using data on patents and patent citations for U.S. firms, we find that institutions’ investment horizons are positively related to the number of patents and patent citations. We also document that long-term (short-term) institutional ownership is positively (negatively) related to the innovation outputs. Our findings suggest that firms’ innovation activities increase with a larger presence of long-term institutional investors.