Abstract: This paper conducts a causality test of the relation between ownership concentration of firms and their innovation, measured by patents and citations. Exploiting the introduction of a new takeover law in Switzerland in 1998 as an instrument for a reduction in firm ownership concentration, we find an increase of innovation for those firms targeted by the reform. Using a sample that contains annual data about the ownership structures of about 150 Swiss companies over the 1990-2010 period, we report an average increase of both patents’ applications and citations per patent of about, respectively, 10% and 12%. Our results are consistent with the view that dispersed ownership increase incentives to innovate.

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