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Capacity Reduction Pressure, Financing Constraints, and Enterprise Sustainable Innovation Investment: Evidence from Chinese Manufacturing Companies

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  • Huan Chen

    (School of Accounting, Chongqing Technology and Business University, Chongqing 400067, China)

  • Tingyong Zhong

    (School of Accounting, Chongqing Technology and Business University, Chongqing 400067, China)

  • Jeoung Yul Lee

    (National Research Base of Intelligent Manufacturing Service, Chongqing Technology and Business University, Chongqing 400067, China
    School of Business Management, Hongik University, Sejong 30016, Korea)

Abstract

Resolving the problem of excess production capacity through sustainable technological innovation is an important issue facing the Chinese economy in achieving high-quality development. The Guiding Opinions of the State Council on Resolving the Contradiction of Severe Overcapacity promulgated by the government in 2013 undoubtedly had a huge external impact on the traditionally competitive manufacturing market. This paper uses 6680 company-year sample observations of 1609 A-share manufacturing listed companies in China from 2010 to 2017 to examine the impact of capacity reduction pressure on ‘corporate sustainable innovation’ (the strategic response made by the enterprise administrator to cope with the impacts of the external environment including economic, social and environmental aspects) investment and the moderating role of financing constraints on this relationship. The research shows that after the promulgation of the Guiding Opinions , the degree of overcapacity had a significant positive effect on the R&D investment of enterprises, indicating that the policy to resolve overcapacity promoted their sustainable innovation investment. Such a phenomenon indicates that, to a certain extent, in the context of capacity reduction, companies have strong pressure and motivation to seek a way out through sustainable innovation. However, financing constraints have a significant inhibitory influence on the anti-forcing effect of the capacity reduction policy, indicating that the ability of enterprises to respond to external capacity reduction policies is subject to their own limited financing. Further investigation shows that capacity reduction pressure mainly promotes the sustainable innovation investment of private enterprises and has no significant impact on that of state-owned enterprises. This may be because private enterprises struggled more for survival during the transition period. The results of this paper provide a theoretical basis and reference value for the formulation of government policies and the development of enterprises.

Suggested Citation

  • Huan Chen & Tingyong Zhong & Jeoung Yul Lee, 2020. "Capacity Reduction Pressure, Financing Constraints, and Enterprise Sustainable Innovation Investment: Evidence from Chinese Manufacturing Companies," Sustainability, MDPI, vol. 12(24), pages 1-16, December.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:24:p:10472-:d:462188
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    3. Guoge Yang & Fengyi Wang & Feng Deng & Xianhong Xiang, 2023. "Impact of Digital Transformation on Enterprise Carbon Intensity: The Moderating Role of Digital Information Resources," IJERPH, MDPI, vol. 20(3), pages 1-26, January.
    4. Zhao-Zhen Zhu & Yue Chen & Jiang Zhao & Zhu-Ying Yu, 2023. "Intelligent Manufacturing and Value Creation in Enterprises: Lessons from a Quasi-Natural Experiment in a Chinese Demonstration Project," Sustainability, MDPI, vol. 15(15), pages 1-17, July.
    5. Wen Zhong & Minggui Zheng, 2022. "How the Marketization of Land Transfer Affects High-Quality Economic Development: Empirical Evidence from 284 Prefecture-Level Cities in China," Sustainability, MDPI, vol. 14(19), pages 1-22, October.
    6. Wang, Hua & Liao, Lingtao & Wu, Ji (George), 2023. "Robot adoption and firm's capacity utilization: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    7. Xiaoying Ju & Huizhao Li & Peng Yao & Jianxu Liu & Fei Chen & Songsak Sriboonchitta, 2022. "Analysis of the Impact of Industrial Land Price Distortion on Overcapacity in the Textile Industry and Its Sustainability in China," Sustainability, MDPI, vol. 14(8), pages 1-17, April.
    8. Wang, Zhan-ao & Zheng, Chengsi, 2022. "Is technological innovation the cure for overcapacity? Exploring mediating and moderating mechanisms," Journal of Business Research, Elsevier, vol. 147(C), pages 348-361.
    9. Lihua Hu & Yuanyuan Chen & Tao Fan, 2022. "The Influence of Government Subsidies on the Efficiency of Technological Innovation: A Panel Threshold Regression Approach," Sustainability, MDPI, vol. 15(1), pages 1-21, December.

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