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Internal control and corporate innovation: evidence from China

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  • Ping Li
  • Wei Shu
  • Qingquan Tang
  • Ying Zheng

Abstract

This study investigates whether and how internal control quality affects firms’ innovation decisions on exploratory innovation and routine innovation using a sample of Chinese listed firms. Our empirical evidence shows that firms with high-quality internal controls are associated with less innovation activities with regard to exploratory innovation, routine innovation, and total innovation. We further find that the role of internal controls in innovation strategies is more pronounced for high-tech firms. Specifically, we show that firms with high-quality internal controls shift innovation investment from exploratory innovation to routine innovation. Our findings provide evidence that internal control quality can have side-effects on a firm’s innovation activities in emerging markets.

Suggested Citation

  • Ping Li & Wei Shu & Qingquan Tang & Ying Zheng, 2019. "Internal control and corporate innovation: evidence from China," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 26(5), pages 622-642, September.
    • Handle: RePEc:taf:raaexx:v:26:y:2019:i:5:p:622-642
    DOI: 10.1080/16081625.2017.1370380
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    Cited by:

    1. Zhang, Chengrui & Li, Zhaohong & Xu, Jiaqian & Luo, Yiyang, 2024. "Accounting information quality, firm ownership and technology innovation: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 93(C).
    2. Wan, Guochao & Zhang, Weike & Li, Chao, 2024. "How does low-carbon city pilot policy catalyze companies toward ESG practices? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 1593-1607.
    3. Tu Thanh Hoai & Nguyen Phong Nguyen, 2022. "Internal Control Systems and Performance of Emerging Market Firms: The Moderating Roles of Leadership Consistency and Quality," SAGE Open, , vol. 12(3), pages 21582440221, September.
    4. Kun Zhang & Yuanyuan Wang & Xuegang Cui & Hong Yue, 0. "Can the academic experience of senior leadership improve corporate internal control quality?," Asian Business & Management, Palgrave Macmillan, vol. 0, pages 1-30.
    5. Qianhui Ma & Lan Ju & Zishi Zhang, 2022. "Innovation Input and Firm Value: Based on the Moderating Effect of Internal Control," Sustainability, MDPI, vol. 14(18), pages 1-24, September.
    6. Xu, Yong & Zhao, Xin & Wang, Jian & Xie, Peijun, 2023. "Clarifying the dispute of corporate social responsibility: Evidence from green technological innovation," Technology in Society, Elsevier, vol. 75(C).
    7. Shu, Wei & Chen, Ying & Chen, Xuejiao, 2023. "Information technology empowerment and corporate budget control: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    8. Zhou, Jingting & Li, Wanli & Yan, Ziqiao & Lyu, Huaili, 2021. "Controlling shareholder share pledging and stock price crash risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 77(C).
    9. Ruba Hamed, 2023. "The Role of Internal Control Systems in Ensuring Financial Performance Sustainability," Sustainability, MDPI, vol. 15(13), pages 1-18, June.
    10. Wang, Jiaxin & Wu, Zhifeng & Yuan, Xue & Song, Zilong, 2024. "Peer governance effects of information security breaches," Energy Economics, Elsevier, vol. 129(C).
    11. Yu, Lin & Lv, Haixia & Fung, Anna & Feng, Keyou, 2024. "CEO turnover shock and green innovation: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 894-908.
    12. Siyi Deng & Jie He, 2024. "Managerial inclusiveness and corporate innovation in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(1), pages 381-410, March.
    13. Kelly Huang & Brent Lao & Gregory McPhee, 2020. "Internal information quality and patent‐related innovation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(3-4), pages 489-518, March.
    14. Lhuillery, Stéphane & Tellechea, Marion & Thiéry, Stéphanie, 2023. "Innovation in lieu of compliance: Internal audit departments’ standardized and non-standardized knowledge sources," Technovation, Elsevier, vol. 123(C).
    15. Vu, Quang & Nga, Nguyen Thi Thuy, 2022. "Does the implementation of internal controls promote firm profitability? Evidence from private Vietnamese small- and medium-sized enterprises (SMEs)," Finance Research Letters, Elsevier, vol. 45(C).
    16. Oliver Henk, 2020. "Internal control through the lens of institutional work: a systematic literature review," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 31(3), pages 239-273, September.
    17. Dr.Muganda Munir Manini & Dr.Umulkher Ali Abdillahi, 2023. "Does the Internal Control Environment Drive the Performance of Cooperatives? A PLS-SEM Perspective," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(7), pages 721-745, July.
    18. Kun Zhang & Yuanyuan Wang & Xuegang Cui & Hong Yue, 2022. "Can the academic experience of senior leadership improve corporate internal control quality?," Asian Business & Management, Palgrave Macmillan, vol. 21(2), pages 231-260, April.
    19. Ruqia Shaikh & Zhiqiang Li & Xiaoli Wang & Muhammad Rizwan Nazir, 2022. "Firm innovation and ultimate control mechanism: Case of emerging market," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(2), pages 440-456, March.

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