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.

No abstract

The existing literature views credit line drawdowns as a quick, low‐cost way for a firm to access cash for immediate needs when facing a liquidity shock. We investigate whether firms use credit lines strategically to accumulate precautionary balances in anticipation of performance declines. We show that unexpected drawdowns, measured as the residual from a predictive regression of drawdowns, predict increases in cash balances, future cash flow declines, and future covenant violations. Firms with unexpected drawdowns see less favorable terms in renegotiations than firms without unexpected drawdowns but they are better able to finance future capital expenditures following a covenant violation.

We study whether the innovation decisions of a firm are improved as a result of information reflected in the firm's stock price. We show that firms with more informative stock prices, as measured by price nonsynchronicity, have better innovation outcomes, as measured by the number of patents and patent citations. Our results are not driven by managerial private information and are robust to various alternative specifications. We also find that price informativeness is more important to innovation when managers are less experienced or face greater uncertainty about the optimal innovation strategy and that these effects are primarily observed in the small and mid-sized firms where additional information may be of greater value. Our results are consistent with the notion that capital markets can have real effects on the economy.JEL Codes: O31, G14, G30

We study the effect of stakeholder orientation on corporate tax avoidance. Using the staggered passage of constituency statutes across U.S. states between 1983 and 2006, we show that greater stakeholder orientation results in increased tax avoidance. We further find greater tax avoidance among firms with limited financial resources and that employees benefit from the change. Our results are consistent with stakeholder salience theory that resource-constrained managers prioritize the claims of salient stakeholders, such as employees, at the expense of secondary stakeholders, such as the government.