Mutual fund activism and corporate innovation: Evidence from China

Abstract This paper examines whether and how mutual fund activism affects corporate innovation. Using a patent‐based innovation dataset from 2006 to 2017, our finding, which is inconsistent with the managerial myopia hypothesis, reveals that mutual fund intervention is associated with corporate innovation. We propose that mutual fund intervention promotes corporate innovation, proxied by invention patents. In addition, the effect of mutual fund intervention on corporate innovation is more pronounced for non‐state‐owned enterprises (non‐SOEs) than for state‐owned enterprises (SOEs), and that mutual fund intervention is likely to increase firms' portfolio R&D expenditures. Finally, we offer robustness checks and address possible endogeneity concerns.