Investor experience and innovation performance: The mediating role of external cooperation

• DOI: http://doi.org/10.1002/smj.3089
• Author: Cheng‐Jen Huang,Wai Fong Boh,Anne Wu
• Date: 01 January 2020
• Published date: 01 January 2020

RESEARCH ARTICLE

Investor experience and innovation performance:

The mediating role of external cooperation

Wai Fong Boh

1

| Cheng-Jen Huang

2,3

| Anne Wu

2

1

Nanyang Business School, Nanyang Technological University, Singapore, Singapore

2

Department of Accounting, National Chengchi University, Taipei City, Taiwan

3

Department of Accounting, Tunghai University, Taichung, Taiwan

Correspondence

Wai Fong Boh, Nanyang Business School,

Nanyang Technological University,

S3-B2A-14, Nanyang Avenue, Singapore

639798, Singapore.

Email: awfboh@ntu.edu.sg

Funding information

Nanyang Technological University, Grant/

Award Number: RG144-15; Taiwan

Ministry of Science and Technology, Grant/

Award Number: NSC 99-2410-H-029 -011

-MY3

Abstract

Research Summary:We add to the literature examining

the ownership-innovation relationship by examining two

major investor types: corporate investors and family inves-

tors. We use organizational environmental scanning as a

new perspective to understand how these investors' capa-

bilities influence firms' external cooperation and innova-

tion performance. We found that corporate investors with

broad investment experience strengthen a firm's environ-

mental scanning, enhancing innovation performance by

increasing the number of external cooperation activities

the firm engages in. Conversely, family investors' broad

investment experience tend to be negatively associated

with the number of external cooperation and with firm

innovation. Our results show that investors influence firm

innovation not simply through a monitoring role but also

by affecting firms' abilities to innovate, once we factor in

the types of investors and their capabilities.

Managerial Summary:We investigate how two different

types of investors, corporate and family, influence the

innovation performance of publicly-traded high-tech firms

in Taiwan. We found that the presence of major corporate

investors with broad investment experience enhances

firms' innovation performance by increasing external coop-

eration activities firms engage in. Corporate investors

appear to enhance organizations' environmental scanning

Received: 30 June 2014 Revised: 31 July 2019 Accepted: 6 August 2019 Published on: 8 October 2019

DOI: 10.1002/smj.3089

124 © 2019 John Wiley & Sons, Ltd. Strat. Mgmt. J. 2020;41:124–151.wileyonlinelibrary.com/journal/smj

abilities and, in turn, their innovation performance. Con-

versely, family investors' broad investment experience is

negatively associated with firm innovation because such

firms engage in fewer external cooperation activities. A

focus on control and social cohesion in family firms

appears to decrease the emphasis on external knowledge

acquisition when family investors have broad investment

experience. In summary, our results show that investors'

breadth of investment experience influences firms' ability

to innovate.

KEYWORDS

environmental scanning, external cooperation, family ownership,

innovation performance, investor experience

1|INTRODUCTION

Recognizing the importance of innovation to a firm's growth and performance, prior research has

examined determinants of innovation ranging from industry structure and institutional contexts to

firm characteristics and intra-organizational attributes (e.g., Ahuja, Lampert, & Tandon, 2008). At

the firm level, prior research has examined how the firm's ownership structure influences innovation

(Hill & Snell, 1988; Hoskisson, Hitt, Johnson, & Grossman, 2002). This research tends to be domi-

nated by the premise that investors and managers have different risk preferences, propagating prob-

lems of agency, which results from the separation of ownership and control (Ahuja et al., 2008).

Accordingly, institutional investors serve a key monitoring role to mitigate agency issues (Aghion,

Van Reenen, & Zingales, 2013; Bushee, 1998). Our research demonstrates that this focus on agency

theory may be overly narrow and should be expanded for the following reasons.

The emphasis on agency theory is the result of the current literature's narrow focus on financial

institutional investors, when examining the ownership-innovation relationship (Bushee, 1998;

Kochhar & David, 1996). Even when Hoskisson et al. (2002) differentiated between different types

of institutional investors, they still focused on financial investors: pension funds vs investment funds.

Financial institutional investors invest for financial reasons: to gain investment returns on their

investment portfolios (Douma, George, & Kabir, 2006). Their investment strategies focus primarily

on maximizing the market value and dividend payouts of their investments (Aguilera & Jackson,

2003). They pay careful attention to financial returns and, depending on their investment horizons,

may have different liquidity emphases (Hoskisson et al., 2002). Agency theory was highly relevant

for these studies because financial institutional investors have good monitoring capabilities that

address agency conflicts (Douma et al., 2006).

However, other types of investors are just as dominant and significant, especially in non-US mar-

kets, and they differ in fundamental ways from financial investors. We focus on two key investor

types: corporate investors and family investors. Both groups have fundamentally different investment

objectives than do financial investors, and their investment goals do not always emphasize financial

returns. Corporate investors may invest for strategic or nonfinancial reasons, such as gaining control

BOH ET AL.125