Small but salient: Minority shareholders' innovation attention in interactive online platforms and corporate innovation

We examine the impact of minority shareholders' innovation attention on corporate innovation. The catering hypothesis suggests that firms cater to minority shareholders by increasing only innovation quantity. The monitoring hypothesis argues that innovation attention has monitoring effect and thus motivates managers to pursue both innovation quantity and quality. Using a large sample of Chinese firms and minority shareholder postings on two official interactive online platforms, we document that innovation attention positively impacts innovation quantity and quality. The findings support the monitoring hypothesis. Our findings are robust to alternative innovation metrics and innovation attention, and after accounting for endogeneity. Additional analyses suggest that: (1) the effect is more salient for firms with more dispersed ownership concentration, higher innovation pressure, and greater degree of information asymmetry, (2) lowered agency cost due to minority shareholder attention is the transmission channel for the results, and (3) conditional on a firm's performance, a high innovation attention from minority shareholders reduces the CEO turnover-performance sensitivity and stock turnover, which is consistent with the notion that minority shareholders' innovation questions help raise the innovation failure tolerance to drive more innovation quantity and quality.