Are foreign investors locusts? The long-term effects of foreign institutional ownership

Jan Bena, Miguel A. Ferreira, Pedro Matos, Pedro Pires

Research output: Contribution to journalArticlepeer-review

94 Citations (Scopus)

Abstract

This paper challenges the view that foreign investors lead firms to adopt a short-term orientation and forgo long-term investment. We find instead that greater foreign institutional ownership fosters long-term investment in fixed capital, innovation, and human capital. Foreign institutional presence also leads to a higher innovation productivity. We identify these effects by exploiting the exogenous variation in foreign institutional ownership that follows the addition of a stock to the MSCI World index. Our findings are explained by the disciplinary role of foreign institutions on lazy managers worldwide.
Original languageEnglish
Pages (from-to)122-146
JournalJournal of Financial Economics
Volume126
Issue number1
DOIs
Publication statusPublished - Oct 2017

Keywords

  • Innovation
  • Institutional ownership
  • Investment
  • Monitoring
  • Patents

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