Myopic or monitoring institutional investors: The case of R&D intensity in Swedish listed firms

Abstract: By examining the effects of institutional ownership on R&D intensity, this thesis intends to explain whether institutional investors impose myopia on, or act as monitors in, their portfolio firms. Further, the thesis aims to examine if heterogeneity in investment strategies among institutional investors translates to heterogeneity in imposed myopia and monitoring. Based on the methodology of Wahal and McConnell (2000), we use data from 111 listed Swedish firms from 2002 to 2016, to regress R&D intensity on institutional ownership, alongside a set of control variables. We divide institutional investors into tertiles based on portfolio turnover and make similar regressions. The regressions are made with fixed effects for firm and year, and comprise change and level data. We find that institutional investors seem to discourage R&D intensity in their portfolio firms, and that this effect is reaffirmed when dividing institutional investors into tertiles. Thus, our results suggest that institutional investors impose myopia on their portfolio firms. Furthermore, we find no significant support for heterogeneity among institutional investors in imposing myopia.