Shareholder Coordination and Corporate Innovation

We show that greater shareholder coordination, as proxied by the geographic proximity between institutional investors, is positively related to corporate innovation outcomes. This relationship is driven by coordination among dedicated and independent institutions who have strong monitoring incentives and is more pronounced among firms with lower blockholder ownership and greater information asymmetry where there is greater benefit to monitoring. We propose that shareholder coordination promotes corporate innovation through a reduction in managerial agency problems. Overall, our results are consistent with the notion that greater shareholder coordination enables diffuse shareholders to monitor managers more effectively and enhances corporate innovation