Common institutional ownership types and corporate innovation: A taxonomy based on whether the investees are in the same industry

Using data from 2008 to 2022 for Chinese A-share listed firms, this paper explores the impact of common institutional ownership on firm innovation. Theoretically, common institutional ownership may increase the tendency of collusion among firms through "monopoly mechanism" to avoid fierce competition, but provide firms with information and resources through "governance mechanism" to play a synergistic role. To this end, we construct two metrics: same-industry common institutional ownership and cross-industry common institutional ownership, which allow us to capture both of these mechanisms separately. The empirical results show that same-industry common institutional ownership inhibits firm innovation, while cross-industry common institutional ownership increases firm innovation, supporting the corresponding theoretical predictions respectively. Further, the cross-sectional test suggests that state-owned inhibits firm innovation more than non-state-owned same-industry common institutional ownership, while non-state-owned promotes firm innovation more than state-owned cross-industry common institutional ownership.