By using the panel data of Chinaís high-tech listed companies in 2013-2018, this paper shows common funds as active institutional investors significantly promotes firmsí R&D investment. For every 10 percentage point increase of common fund ownership rate, high-tech firmsí R & D expense ratio and R & D staff ratio would increase respectively by 0.1 and 2.3 percentage points. The impact is greater in more technology-intensive companies. But institutional investors have no influence on firmsí innovation productivity measured by the number of patents gained per million R & D expenses. Further research suggests institutional investors affect high-tech firmsí innovation through two channels. In the corporate governance channel, institutional investors raise firmsí capitalisation ratio of R&D expenses to balance R & D investment and short-term earnings pressure and also increase management monetary compensation with stronger incentive for firm innovation. In the capital funding capacity channel, institutional investor shareholding as a signal for firm quality increases the chance of firmsí equity refinancing. Every 10 percentage point increase of common fund ownership rate raises the likelihood of firmsí seasoned equity offerings in the following three years by nearly 1 percentage point.
JEL classification numbers: G32, G23, G14.
ISSN: 1792-6599 (Online)