Free-float, institutional ownership and R&D investment

This paper examines the association between stock free-float, institutional ownership, and corporate R&D investment, with particular attention to whether the institutional ownership–R&D relation varies with firms’ free-float. We motivate the analysis with a theoretical framework in which institutional investors may be linked to both monitoring consistent with long-run investment and short-horizon performance pressure consistent with managerial myopia. Free-float is related to market investability and trading intensity: firms with higher free-float tend to have more widely held and more actively traded shares, which may coincide with greater market scrutiny and exposure to short-term performance pressures. Using data for 13,480 publicly listed firms across 89 countries, we find that free-float is positively associated with R&D, institutional ownership is negatively associated with R&D, and the interaction between free-float and institutional ownership is negative and statistically significant across alternative R&D measures. These results indicate that the institutional ownership–R&D association is more negative among firms with higher free-float. This pattern is consistent with the interpretation that short-horizon pressures linked to institutional ownership are more pronounced in higher-free-float trading environments. Overall, the findings suggest that the association between institutional ownership and innovative investment is conditional on firms’ trading environment.