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The Effect of Financing on Firm Innovation: Multiple Case Studies on Chinese Manufacturing Enterprises

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  • Yu Shi
  • Lei Gong
  • Jin Chen

Abstract

This article investigates the effects of financing on innovation through multiple case studies of Chinese manufacturers: M&G, Haier, SAIC Motor, and Sifang. Although financing enables firms to access more capital and nonfinancial resources that can fuel innovation in technology, management, cultural, and business models, it also forces firms to adhere to stricter disclosure requirements and some myopic incentives that may constrain innovation. We find a complex and dynamic relationship between financing and innovation. As for technology innovation, the quality of internal innovation declines after financing, and firms experience a drop in both the patent growth rate and the R&D/asset ratio. However, firms acquire external innovation with their additional money in hand, so the quantity of inventions increases. The impact of financing on management, cultural, and business model innovation is positive. Our analysis reveals that financing changes firm strategies in pursuing innovation.

Suggested Citation

  • Yu Shi & Lei Gong & Jin Chen, 2019. "The Effect of Financing on Firm Innovation: Multiple Case Studies on Chinese Manufacturing Enterprises," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(4), pages 863-888, March.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:4:p:863-888
    DOI: 10.1080/1540496X.2018.1478284
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    Cited by:

    1. Hu, Guoqiang & Wang, Xiaoqi & Wang, Yu, 2021. "Can the green credit policy stimulate green innovation in heavily polluting enterprises? Evidence from a quasi-natural experiment in China," Energy Economics, Elsevier, vol. 98(C).
    2. Wen, Huwei & Lee, Chien-Chiang & Zhou, Fengxiu, 2021. "Green credit policy, credit allocation efficiency and upgrade of energy-intensive enterprises," Energy Economics, Elsevier, vol. 94(C).
    3. Liuhua Fang & Bin Zhao & Wenyu Li & Lixia Tao & Luyao He & Jianyu Zhang & Chuanhao Wen, 2023. "Impact of Digital Finance on Industrial Green Transformation: Evidence from the Yangtze River Economic Belt," Sustainability, MDPI, vol. 15(17), pages 1-23, August.
    4. Xiao, Anran & Xu, Zeshui & Qin, Yong & Lv, Shengnan & Skare, Marinko, 2023. "The impact of natural resources on technology innovation from cross-country panel data: A comparative analysis and policy-level insights," Resources Policy, Elsevier, vol. 85(PB).

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