The shareholder revolution dominant in the U.S. since the 1980s has been theorized to hamper innovation efforts, but R&D activities have become more prominent among U.S. businesses in the past few decades. This study offers a new explanation for this paradoxical surge of innovation efforts by distinguishing between two different innovation strategies—exploitation and exploration. We examined approximately 1.3 million patents filed by 4,420 U.S.-headquartered firms and their subsidiaries, representing about 50% of all utility patent grants of U.S. origin between 1980 and 2015. We dissect a clear, decade-spanning shift in firm orientation from explorative innovation to a more exploitative approach that capitalizes on existing knowledge—a trend echoing the growing influence of institutional investors. We theorize a mechanism of market coupling linking the market logics, institutional investors, and firm innovation strategies and suggest that quasi-indexed investors, such as indexed funds and Exchange Traded Funds (ETFs), are grave suspects of this historical transformation towards exploitation and away from exploration in the US. This highlights a need to rethink a model that promotes long-term, sustainable innovation crucial to the economy and society.
