Shareholder involvement and firm innovation performance: Empirical evidence from Chinese firms

Purpose: Whether shareholders’ involvement in management benefits the organization’s performance remains inconclusive. The purpose of this study is to reconcile the conflicting results by exploring whether and under which contexts shareholder involvement may impact firm innovation performance. Design/methodology/approach: This study attempts to combine previous theoretical views (reactance and agency theories) to examine a curvilinear effect of shareholder involvement on firm innovation performance based on governance related to cost-benefit analysis. Drawing on data from 174 Chinese manufacturing firms, the hierarchical regressions were used to test the hypotheses. Findings: The study finds that shareholder involvement has a U-shaped relationship with firm innovation performance. Moreover, ownership incentive strengthens the U-shaped relationship, while monitoring weakens it. Originality/value: Examination of the U-shaped main effect of shareholder involvement and these contingent factors further explains the mixed empirical results concerning the link between shareholder activism and firm-level performance.