Long‐Term Institutional Ownership and Corporate Breakthrough Innovation: Evidence From the Perspective of Patient Capital

ABSTRACT This paper examines whether institutional ownership with different investment horizons is related to corporate breakthrough innovation, using panel data of Chinese A‐share listed firms from 2014 to 2023. Long‐term institutional ownership is positively and significantly associated with breakthrough innovation, while short‐term institutional ownership has no robust effect. Long‐term institutional ownership is also related to incremental innovation, but the coefficient and economic magnitude are larger for breakthrough innovation. The results are robust to alternative measures, including technological novelty, total citations of granted invention patents, and external citations. They also hold under several endogeneity mitigation tests, including first‐difference estimation, propensity score matching, entropy balancing, and a two‐period‐ahead placebo test. Accordingly, the paper interprets the evidence as a robust association rather than a definitive causal effect. Further analysis offers marginal evidence that market competition may strengthen the association between long‐term institutional ownership and breakthrough innovation. The association is more evident among firms with lower financing constraints, high‐tech firms, young firms, and firms with higher media attention. The findings contribute to the literature on institutional investor heterogeneity and corporate innovation from the perspective of patient capital and offer evidence relevant to the allocation of long‐term capital toward high‐quality innovation.