The Ownership Concentration - Innovation Nexus: Evidence from SMEs around The World

Abstract

This study investigates the association between ownership concentration and firm innovation using a large data sample of small and medium-sized enterprises (SMEs) spanning 93 countries from 2011 to 2018. We find that higher ownership concentration is associated with a lower likelihood of introducing innovative activities. Further, we aim to validate the possible mechanisms through which concentrated ownership is detrimental to corporate innovation. The results reveal that concentrated ownership has detrimental impacts on innovation for firms with higher degree of asymmetric information, and firms lead by less experienced managers. In addition, we show that the negative association between ownership concentration and innovation only exists for financially constrained firms, which are younger enterprises and SMEs with higher financing obstacles.