We examine the influence of institutional investor ownership in a firm on their investment in RD. We find partial support for managerial myopia in that at a higher level of institutional ownership, we find managers cut back RD investment. We find a positive relation between institutional holdings in a firm and their investment in RD till the institutional holdings in the firm reaches a threshold. Our results are consistent with the notion that managerial myopia sets in as the managers yield to institutional pressure when the institutional ownership level exceeds a threshold. Our results suggest that managers become sensitive to the pressure from institutional investors when the institutional ownership crosses a threshold. We find the greater the stock undervaluation, the lower the investment in RD. We find stronger negative relation between institutional ownership and RD when the firm's stock is more undervalued, consistent with the notion that managerial myopia worsens when the firm is more likely to be a takeover target as their stock becomes undervalued. We find banks, insurance companies, and public pension funds have a positive influence on the firm's RD, but mutual funds and hedge funds have a negative influence on RD. We find positive influence of dedicated institutional investors but negative influence of transient investors and quasi-indexers on corporate RD.
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