Barbarians at the gate? Institutional investors and firm innovation Investment: The moderating role of female executives

Innovation financing plays a vital role in firms' technological advancement, yet how institutional investors affect firm innovation remains a subject of debate. To reconcile the inconsistent findings in existing literature, this paper establishes a unified framework and demonstrates that institutional investors exert a curvilinear effect on firm innovation investment. The initial funding provided by institutional investors serves as a catalyst for innovation spending through an influx of resource-based positive net effect into the firm. However, with institutional shareholding goes up, there is a turning point where the negative myopia effect exceeds the positive resource effect and takes dominance, thereafter more excessive institutional investment leads to a decline in innovation investment due to the net negative effect of institutional invest on the focal firm's strategic decision-making. We also postulate that gender-specific management styles could moderate this effect such that excessive institutional holdings reduce innovation investment at a slower rate. We test our arguments using a multiple-sourced panel dataset covering 2066 Chinese publicly listed firms from 2011 to 2019. Results show that (1) institutional investors have a curvilinear impact, taking an inverted U-shape, on firm innovation investment, and (2) the presence of women executives in top management teams moderates this curvilinear relationship. This study contributes to a holistic scholarly understanding on the double-edged effect and how to leverage the positive role of gender to make the best of external institutional investment.