Institutional Ownership and Technology Spillovers

Abstract

This thesis consists of three studies investigating the role of both foreign institutional investors and technology spillovers in the global economy. In Chapter 2, we show that foreign institutional ownership (FIO) positively influences risk-taking, and this positive relation is achieved through direct and indirect channels. FIO is found to be a substitute for country-level corporate governance in determining corporate risk-taking, indicating that foreign institutional investors play a significant role promoting risk-taking in countries with weaker corporate governance. Various robustness tests and careful considerations of endogeneity confirm our main conclusions. In Chapter 3 we examine the effect of technology spillover on a firms’ stock price crash risk. Existing literature suggests that firms readily absorb knowledge leakages from competitor firms. We find that technology spillovers provide the market with better knowledge of the innovation prospects of the firm. This relationship is driven primarily by the transparency of knowledge leakages. Good corporate governance environments facilitate this which further emphasizes the informational role of technology spillovers. The transparency it provides to the potential performance of the firms’ projects offers the market an avenue to discriminate between good and bad projects at an earlier stage, reducing the crash risk associated with bad projects. This reduction in information asymmetry has a real effect on the firms’ capital structure. In particular, the reduction in information asymmetries associated with technology spillovers allows a firm to be less reliant on financial leverage. In Chapter 4, we show that non-target rival firms exhibit positive cumulative abnormal returns (CARs) in a cross-border acquisition. Higher CARs are associated with the size of the potential technology spillovers that rivals can absorb from the acquiring firm. Technology spillovers from cross-border acquisitions have real effects on Tobin’s Q, Total Factor Productivity, and Innovation for the rival firm. The impact of technology spillovers increases with horizontal acquisitions, intellectual property rights, as well as a firm’s absorptive capacity. Our paper sheds new light on the role of cross-border acquisitions in facilitating horizontal international technology spillovers in emerging markets, which has previously been found to have either a negative or an insignificant effect.