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Invisible handcuffs: Nepotism culture and SMEs’ innovation

Author

Listed:
  • Xie, Wenyu
  • Yin, Weijun
  • Tu, Dorothy

Abstract

This paper investigates how nepotism culture affects SMEs’ innovation behavior. Using a large international datasets of small and medium enterprises, we establish the negative effect of nepotism culture on SMEs’ innovation, and observe the heterogeneous impact based on the presence of informal payments, financial constraints, and female ownership. Our results suggest that nepotism culture hinders highly skilled human capital and formal training, both of which are paramount for technological advancement and economic development. The policy implication is that promoting merit-based recruitment and reducing nepotistic practices could enhance innovation capacity, especially by fostering a more competitive environment.

Suggested Citation

  • Xie, Wenyu & Yin, Weijun & Tu, Dorothy, 2025. "Invisible handcuffs: Nepotism culture and SMEs’ innovation," Finance Research Letters, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:finlet:v:72:y:2025:i:c:s1544612324016180
    DOI: 10.1016/j.frl.2024.106589
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    More about this item

    Keywords

    Nepotism; SMEs; Innovation; Informal institution; Human capital;
    All these keywords.

    JEL classification:

    • Z10 - Other Special Topics - - Cultural Economics - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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