UCL School of Management is delighted to welcome, Michael Blomfield,London Business School, to host a research seminar discussing, ‘More in Common, Further Apart? Common Institutional Ownership and Corporate Innovation’

Abstract

In recent years, there has been a large increase in institutional investors having large shareholdings in multiple firms that compete in the same industry. In this paper, I use detailed drug project data to analyze the relationship between this overlapping ownership and pharmaceutical companies’ decisions to invest in developing drug projects. I find little evidence that higher rates of aggregate common ownership between a focal firm and its industry peers are associated with changes in the firm’s overall rate of innovation project development. However, by exploiting the within-firm variation in a focal firm’s ownership overlap with incumbents in different drug markets, I find significant changes in the direction of innovation within firms. I show that a focal firm having greater common ownership with incumbents in a drug market is associated with a lower probability that a project in that market has a development event. I also find qualitative changes in the types of projects that firms initiate in drug markets in which they are exposed to greater aggregate common ownership. I build on prior research in organizational economics and strategy to propose and test an explanatory mechanism in which managers’ career concerns are altered by common ownership. I find supportive evidence for this mechanism. Additionally, I show that the relationship between drug market-level common ownership and project development is attenuated when CEOs’ wealth is tied more strongly to firm performance.