TY - JOUR
T1 - Institutional investors and medical innovation
AU - Unsal, Omer
AU - Rayfield, Blake
N1 - Publisher Copyright:
© 2019 Board of Trustees of the University of Illinois
PY - 2019/11
Y1 - 2019/11
N2 - In this research paper, we investigate if institutional investors influence corporate innovation in the US pharmaceutical industry. We hand collect unique datasets from the Food and Drug Administration (FDA), including drug patents, drug approvals, medical device approvals, and Phase I-II-III drugs under clinical testing. We find that higher institutional ownership has a positive, causal effect on firm innovation. We document that institutional ownership increases the number of FDA approved products. Then, we examine the innovation quality and find that institutional ownership reduces the likelihood of both drug recalls and market withdrawals. Our results investigate possible underlying mechanisms through which institutional investors provide faster and more frequent innovation outcomes: Institutional holdings act as active monitors by providing insurance for firm executives against innovation failures. Our article sheds new lights on the real effects of institutional investors on pharmaceutical firms’ innovation.
AB - In this research paper, we investigate if institutional investors influence corporate innovation in the US pharmaceutical industry. We hand collect unique datasets from the Food and Drug Administration (FDA), including drug patents, drug approvals, medical device approvals, and Phase I-II-III drugs under clinical testing. We find that higher institutional ownership has a positive, causal effect on firm innovation. We document that institutional ownership increases the number of FDA approved products. Then, we examine the innovation quality and find that institutional ownership reduces the likelihood of both drug recalls and market withdrawals. Our results investigate possible underlying mechanisms through which institutional investors provide faster and more frequent innovation outcomes: Institutional holdings act as active monitors by providing insurance for firm executives against innovation failures. Our article sheds new lights on the real effects of institutional investors on pharmaceutical firms’ innovation.
KW - Firm innovation
KW - Institutional ownership
KW - Pharmaceuticals
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U2 - 10.1016/j.qref.2019.01.013
DO - 10.1016/j.qref.2019.01.013
M3 - Article
AN - SCOPUS:85061134415
SN - 1062-9769
VL - 74
SP - 190
EP - 205
JO - Quarterly Review of Economics and Finance
JF - Quarterly Review of Economics and Finance
ER -