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
Issue number1
StatePublished - Oct 2017

    Research areas

  • Innovation, Institutional ownership, Investment, Monitoring, Patents

ID: 2581896