How can co-institutional investors enhance the core competitiveness of enterprises? Evidence from China

As of 2023, institutional investors hold approximately 44.1% of the total market capitalization of China’s outstanding stocks. By simultaneously investing in multiple firms within the same industry, common institutional investors gain access to broader information channels and proprietary market insights at lower search costs. As shareholder linkages become increasingly common in the capital market, understanding their impact on firm behavior is of considerable practical relevance. This study empirically examines the relationship between common institutional investors and corporate innovation efficiency, using a panel of A-share listed companies in Shanghai and Shenzhen from 2010 to 2019. The results show that such investors enhance innovation efficiency through both monitoring and resource effects. Moreover, the effectiveness of these mechanisms is amplified by stronger internal control systems and better information environments. The study also finds that the impact of co-institutional investors is more pronounced in firms with higher agency costs and in non-state-owned enterprises. This research contributes to the literature on institutional ownership and innovation by providing micro-level evidence of the governance role played by co-institutional investors. It also offers practical insights for promoting sustainable and high-quality development in China and other developing economies.