Passive Institutional Ownership and Green Innovation

Category: Management & Microeconomics Brown Bag Seminar
When: 05 December 2024
, 12:30
 - 13:30
Where: RuW 4.201
Speaker: Marlene Herz

Title: Passive Institutional Ownership and Green Innovation

Abstract: Institutional investors increasingly claim to leverage their influence within publicly listed companies to drive greenhouse gas emission reductions and align business models with a net-zero economy (Sorkin, 2021). While prior studies document a positive impact of passive institutional ownership (IO) on ESG scores (Dyck et al., 2019) and carbon emission reductions (Azar et al., 2021), the relationship between passive IO and the technological dimension of the green transition remains relatively unexplored. This paper addresses this gap by examining whether and how passive institutional investors promote green innovation within their portfolio firms. Using a sample of Russell 3000 constituents (2000–2021), and combining data from Compustat, Thomson Reuters, BoardEx, and PATSTAT, this study employs an instrumental variable approach to identify causal effects. The findings reveal that a 1% increase in passive IO is associated with a 3.2% rise in green patent activity. Notably, this effect is less attributable to direct monitoring on behalf of passive investors and more to their role in enhancing board interconnectivity, which facilitates knowledge spillovers across firms. These results contribute to studies at the nexus between corporate finance and strategic management by underscoring the vital role of long-term oriented investors in shaping green innovation strategy.

Top