Marlene Herz: No Way Out: The Impact of Passive Institutional Ownership on Green Innovation

Institutional investors increasingly claim to leverage their influence in public companies to reduce greenhouse gas emissions and align business models with a net-zero economy. Yet, it is also questioned whether a large subgroup of these investors is actually capable of influencing managerial decisions, given that they are passively invested in these companies, which prevents them from selling their shares and exerting credible pressure on the management. I contribute to this debate by examining whether and how passive investors promote green innovation within their portfolio firms. For that purpose, I use an instrumental variable approach for a sample of Russell 3000 constituents between 2003 and 2021. The findings reveal that a 1% increase in passive institutional ownership increases the number of green patents by 1.8%. Notably, this effect is less attributed to direct monitoring on behalf of passive investors but more to their ability to curb the influence of short-term-oriented shareholders through strategic voting within shareholder meetings.
These results contribute to studies at the nexus between corporate finance and strategic management by underscoring the vital role of long-term oriented investors in influencing green innovation strategy.

 

Marlene Herz has been a research assistant at the Chair of Innovation and Entrepreneurship in East Asia since October 2021. Her research interests lie in innovation and business development and focus on the innovation system of the People's Republic of China and the European Union. Against this background, Marlene discusses in particular the question of how economic policy frameworks need to be designed in order to promote entrepreneurship in a sustainable way.

Prior to her work as a research assistant, Marlene completed a master’s degree in International Political Economy at the London School of Economics and Political Science and a bachelor’s degree in Economics at the University of Cologne. For her research, she also draws on practical experience at the Gesellschaft für Internationale Zusammenarbeit and the Deutsche Investitions- und Entwicklungsgesellschaft.