Lily H.G. Nguyen

How Do Foreign Institutional Investors Enhance Firm Innovation

We examine the effect of foreign institutional investors on firm innovation. Using firm-level data across 26 non-U.S. economies between 2000 and 2010, we show that foreign institutional ownership has a positive, causal effect on firm innovation. We further explore three possible underlying mechanisms through which foreign institutions affect firm innovation: foreign institutions act as active monitors, provide insurance for firm managers against innovation failures, and promote knowledge spillovers from high-innovation economies. Our paper sheds new light on the real effects of foreign institutions on firm innovation.

National Culture and Stock Price Crash Risk

This study examines whether individualistic national culture is associated with stock price crash risk (“crash risk�?) for a sample of firms from 36 countries over the period of 1990 to 2015. We find robust evidence that firms in more individualistic cultural settings exhibit higher future crash risk. Digging deeper, we find that earnings management, excessive managerial risk-taking, and investors’ difference of opinion and overconfidence are all possible explanations for the positive effect of individualism on crash risk. Overall, our findings suggest that individualism, as a key cultural dimension, has an important impact on investor welfare, manifested through crash risk.

How Share Repurchase Affects Firm Innovation

In this paper, we investigate the relationship between share repurchase and firm innovation. Using a sample of 6,889 U.S. firms for the 1996-2006 period, we find a significantly negative effect of share repurchase on current and future firm innovation. Our identification strategy based on the instrumental variables approach suggests this negative effect is causal. The relationship between share repurchase and firm innovation remain valid in all robustness tests.

Impact of Corporate Governance on Corporate Financing and Investment During the 2007-2008 Financial Crisis

We study the impact of the 2007-2008 financial crisis on nonfinancial firms’ financing and investment and the role of corporate governance in mitigating the adverse consequences of the capital supply shock. Employing a difference-in-differences research design, we find that the credit crisis significantly affects firms’ financing and investment behavior in the first year after the onset of the crisis. However, the adverse effect on financing is mitigated for firms with better governance, and this translates into a smaller decline in these firms’ investment. The results are robust to extending the sample period to include the delayed spillover from the banking sector to other capital market sectors. Overall, the evidence supports the view that better governance mitigates the disruption caused by the external capital supply shock to firms’ normal courses of actions.

How Does the Investment Horizon of Institutional Investors of a Firm Affect the Information Asymmetry of its Stock

Our empirical evidence establishes a positive association between short-term institutional ownership and private information in stock trading but a negative correlation between long-term institutional ownership and private information. These relations suggest that short-term institutional investors tend to explore their information advantage and trade speculatively for short-term profits, while long-term institutional investors are more likely to monitor the firms they own, leading to the reduction of the information asymmetry about the firm’s fundamental values. Our results are robust to the inclusion of controls for firm characteristics, analyst coverage and insider trading, as well as the choice of different private information proxies and estimation methods. Overall, our findings highlight the important role of investment horizon of institutional investors in shaping a firm’s information environment.