Corporate innovation and political connections in Chinese listed firms

Hou, Q, Hu, M and Yuan, Y 2017, 'Corporate innovation and political connections in Chinese listed firms', Pacific Basin Finance Journal, vol. 46, pp. 158-176.


Document type: Journal Article
Collection: Journal Articles

Title Corporate innovation and political connections in Chinese listed firms
Author(s) Hou, Q
Hu, M
Yuan, Y
Year 2017
Journal name Pacific Basin Finance Journal
Volume number 46
Start page 158
End page 176
Total pages 19
Publisher Elsevier BV
Abstract This paper examines the relationship between political connections and corporate innovation in China. We find that political connections hinder corporate innovation activities and reduce innovation efficiency, suggesting the existence of political resource curse effect on corporate innovation in Chinese firms. In addition, we find that political connections reduce market competition and increase firms' overinvestments, leading to the crowding out effect with the limited resources insufficiently and inefficiently allocated to corporate innovation in firms. We also find that political connections weaken the impact of corporate innovation on firm future performance. Nonpolitically connected firms with patent applications have better and more effective future business performance than politically connected firms. This study provides policy implications for policy makers to reduce government-led resource allocation, improve market-oriented innovation mechanism, and standardize government subsidies to make the allocation process more transparent, so that corporate technological innovation can lead to the regional and national economic growth.
Subject Banking, Finance and Investment not elsewhere classified
Keyword(s) China
Corporate innovation
Political connections
DOI - identifier 10.1016/j.pacfin.2017.09.004
Copyright notice © 2017 Elsevier B.V
ISSN 0927-538X
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