IDEAS home Printed from https://ideas.repec.org/p/uwa/wpaper/23-08.html
   My bibliography  Save this paper

Political Turnover and Firm Innovation in China: The Moderating Role of Innovation and Entrepreneurship Environment

Author

Listed:
  • Xing Shi

    (School of Economics, Hefei University of Technology, Hefei, China)

  • Ya Zhang

    (School of Economics, Hefei University of Technology, Hefei, China)

  • Yanrui Wu

    (Business School, The University of Western Australia)

  • Huaqing Wu

    (School of Economics, Hefei University of Technology, Hefei, China)

Abstract

The empirical work in this paper is based on an analysis of the data of China's listed companies, the innovation and entrepreneurship index, and local official turnover data at the city level. It shows that policy uncertainty caused by local political turnover in local governments significantly reduces firm innovation. However, improvement in local innovation and entrepreneurship environment can lessen this negative impact. This moderating effect is especially relevant among non-high-tech or financially constrained firms. The robustness of these findings is checked through a series of alternative analyses such as dealing with endogeneity, optional measures of the dependent variable and subsamples.

Suggested Citation

  • Xing Shi & Ya Zhang & Yanrui Wu & Huaqing Wu, 2023. "Political Turnover and Firm Innovation in China: The Moderating Role of Innovation and Entrepreneurship Environment," Economics Discussion / Working Papers 23-08, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:23-08
    Note: MD5 = 0084b0b6be21d5c6c8d415d807b47215
    as

    Download full text from publisher

    File URL: https://ecompapers.biz.uwa.edu.au/paper/PDF%20of%20Discussion%20Papers/2023/DP%2023.08_Shi%20Zhang%20Wu%20and%20Wu.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Chen, Kaihua & Guan, Jiancheng, 2011. "Mapping the functionality of China's regional innovation systems: A structural approach," China Economic Review, Elsevier, vol. 22(1), pages 11-27, March.
    2. Fagerberg, Jan, 2018. "Mobilizing innovation for sustainability transitions: A comment on transformative innovation policy," Research Policy, Elsevier, vol. 47(9), pages 1568-1576.
    3. Feng, Xunan & Johansson, Anders C., 2017. "Political Uncertainty and Innovation in China," Stockholm School of Economics Asia Working Paper Series 2017-44, Stockholm School of Economics, Stockholm China Economic Research Institute.
    4. Lin William Cong & Sabrina T. Howell, 2021. "Policy Uncertainty and Innovation: Evidence from Initial Public Offering Interventions in China," Management Science, INFORMS, vol. 67(11), pages 7238-7261, November.
    5. Guariglia, Alessandra & Liu, Pei, 2014. "To what extent do financing constraints affect Chinese firms' innovation activities?," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 223-240.
    6. José Antonio Alonso & Carlos Garcimartín, 2013. "The Determinants Of Institutional Quality. More On The Debate," Journal of International Development, John Wiley & Sons, Ltd., vol. 25(2), pages 206-226, March.
    7. Deng, Yuping & Wu, Yanrui & Xu, Helian, 2019. "Political turnover and firm pollution discharges: An empirical study," China Economic Review, Elsevier, vol. 58(C).
    8. Cui, Xin & Wang, Chunfeng & Liao, Jing & Fang, Zhenming & Cheng, Feiyang, 2021. "Economic policy uncertainty exposure and corporate innovation investment: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    9. Contractor, Farok J. & Dangol, Ramesh & Nuruzzaman, N. & Raghunath, S., 2020. "How do country regulations and business environment impact foreign direct investment (FDI) inflows?," International Business Review, Elsevier, vol. 29(2).
    10. Teimuraz Gogokhia & George Berulava, 2021. "Business environment reforms, innovation and firm productivity in transition economies," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 11(2), pages 221-245, June.
    11. Ansgar Belke & Irina Dubova & Thomas Osowski, 2018. "Policy uncertainty and international financial markets: the case of Brexit," Applied Economics, Taylor & Francis Journals, vol. 50(34-35), pages 3752-3770, July.
    12. Sergio Correia & Paulo Guimarães & Tom Zylkin, 2020. "Fast Poisson estimation with high-dimensional fixed effects," Stata Journal, StataCorp LP, vol. 20(1), pages 95-115, March.
    13. Jonathan Brogaard & Andrew Detzel, 2015. "The Asset-Pricing Implications of Government Economic Policy Uncertainty," Management Science, INFORMS, vol. 61(1), pages 3-18, January.
    14. Furman, Jeffrey L. & Porter, Michael E. & Stern, Scott, 2002. "The determinants of national innovative capacity," Research Policy, Elsevier, vol. 31(6), pages 899-933, August.
    15. Igor N. Dubina & David F. J. Campbell & Elias G. Carayannis & Anna A. Chub & Evangelos Grigoroudis & Olga V. Kozhevina, 2017. "The Balanced Development of the Spatial Innovation and Entrepreneurial Ecosystem Based on Principles of the Systems Compromise: A Conceptual Framework," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 8(2), pages 438-455, June.
    16. Pei-Fen Chen & Chien-Chiang Lee & Jhih-Hong Zeng, 2019. "Economic policy uncertainty and firm investment: evidence from the U.S. market," Applied Economics, Taylor & Francis Journals, vol. 51(31), pages 3423-3435, July.
    17. Dang, Dandan & Fang, Hongsheng & He, Minyuan, 2019. "Economic policy uncertainty, tax quotas and corporate tax burden: Evidence from China," China Economic Review, Elsevier, vol. 56(C), pages 1-1.
    18. An, Heng & Chen, Yanyan & Luo, Danglun & Zhang, Ting, 2016. "Political uncertainty and corporate investment: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 174-189.
    19. Chen, Yinghui, 2021. "Does political turnover stifle or stimulate corporate innovation?," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 1126-1145.
    20. Demirguc-Kunt, Asli & Love, Inessa & Maksimovic, Vojislav, 2006. "Business environment and the incorporation decision," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2967-2993, November.
    21. Cui, Xin & Wang, Chunfeng & Sensoy, Ahmet & Liao, Jing & Xie, Xiaochen, 2023. "Economic policy uncertainty and green innovation: Evidence from China," Economic Modelling, Elsevier, vol. 118(C).
    22. Chong, Terence Tai-Leung & Lu, Liping & Ongena, Steven, 2013. "Does banking competition alleviate or worsen credit constraints faced by small- and medium-sized enterprises? Evidence from China," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3412-3424.
    23. Berkowitz, Daniel & Caner, Mehmet & Fang, Ying, 2012. "The validity of instruments revisited," Journal of Econometrics, Elsevier, vol. 166(2), pages 255-266.
    24. Lei Cheng & Zhen Lei, 2015. "Does the expansion of Chinese state-owned enterprises affect the innovative behavior of private enterprises?," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 22(1), pages 24-54, March.
    25. Cao, Jerry & Julio, Brandon & Leng, Tiecheng & Zhou, Sili, 2016. "Political Turnover, Ownership, and Corporate Investment," RIEI Working Papers 2016-06, Xi'an Jiaotong-Liverpool University, Research Institute for Economic Integration.
    26. M. Teresa Fernández Fernández & Francisco J. Blanco Jiménez & Juan R. Cuadrado Roura, 2015. "Business incubation: innovative services in an entrepreneurship ecosystem," The Service Industries Journal, Taylor & Francis Journals, vol. 35(14), pages 783-800, October.
    27. Cheng, Lei & Cheng, Hong & Zhuang, Ziyin, 2019. "Political connections, corporate innovation and entrepreneurship: Evidence from the China Employer-Employee Survey (CEES)," China Economic Review, Elsevier, vol. 54(C), pages 286-305.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Manasseh Tumuhimbise & Benjamin Musiita & Asaph Kaburura Katarangi & Geoffrey Kahangane & Atwine Daniel Wanito & Sheila Akampwera, 2024. "Increasing access to business incubation services for cottage start-ups to promote inclusive entrepreneurship in Southwest Uganda," Journal of Economics and Behavioral Studies, AMH International, vol. 16(1), pages 1-11.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shi, Xing & Zhang, Ya & Wu, Yanrui & Wu, Huaqing, 2023. "Political turnover and firm innovation in China: The moderating role of innovation and entrepreneurship environment," Journal of Asian Economics, Elsevier, vol. 88(C).
    2. Ji, Xiaoqing & Liu, Shuai & Lang, Jingyi, 2022. "Assessing the impact of officials' turnover on urban economic efficiency: From the perspective of political promotion incentive and power rent-seeking incentive," Socio-Economic Planning Sciences, Elsevier, vol. 82(PB).
    3. Nguyen, Duc Nguyen & Nguyen, Canh Phuc & Dang, Le Phuong Xuan, 2022. "Uncertainty and corporate default risk: Novel evidence from emerging markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
    4. Cao, Yang & Chen, Yinghui & Zhang, Yuhe, 2022. "Political uncertainty, innovation-driven strategy, and corporate R&D," Research in International Business and Finance, Elsevier, vol. 60(C).
    5. Chen, Yinghui, 2021. "Does political turnover stifle or stimulate corporate innovation?," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 1126-1145.
    6. Theodora Bermpei & Antonios Nikolaos Kalyvas & Lorenzo Neri & Antonella Russo, 2022. "Does economic policy uncertainty matter for financial reporting quality? Evidence from the United States," Review of Quantitative Finance and Accounting, Springer, vol. 58(2), pages 795-845, February.
    7. Fengxiu Zhou & Chien-Chiang Lee, 2023. "Political uncertainty and innovation of export enterprises: international evidence for developing countries," Economic Change and Restructuring, Springer, vol. 56(6), pages 4371-4400, December.
    8. Andrea De Meo & Lorenzo Ferrari, 2018. "Political Turnover and the Performance of Local Public Enterprises," CEIS Research Paper 438, Tor Vergata University, CEIS, revised 08 Aug 2018.
    9. Wadhwa, Kavita & Syamala, Sudhakara Reddy, 2023. "Are business groups different from other family firms? Evidence from corporate investments during political uncertainty," Emerging Markets Review, Elsevier, vol. 54(C).
    10. Jia, Shaoqing & Yang, Liuyong & Zhou, Fangzhao, 2022. "Geopolitical risk and corporate innovation: Evidence from China," Journal of Multinational Financial Management, Elsevier, vol. 66(C).
    11. Hong, Seiwoong & Lee, Junyong & Oh, Frederick Dongchuhl & Shin, Donglim, 2023. "Religion and foreign direct investment," International Business Review, Elsevier, vol. 32(1).
    12. Wang, Jialu & Mishra, Shekhar & Sharif, Arshian & Chen, Huangen, 2024. "Dynamic spillover connectedness among green finance and policy uncertainty: Evidence from QVAR network approach," Energy Economics, Elsevier, vol. 131(C).
    13. Christopher Thiem, 2020. "Cross-Category, Trans-Pacific Spillovers of Policy Uncertainty and Financial Market Volatility," Open Economies Review, Springer, vol. 31(2), pages 317-342, April.
    14. Ozili, Peterson Kitakogelu, 2021. "Economic policy uncertainty in banking: a literature review," MPRA Paper 108017, University Library of Munich, Germany.
    15. Vo, Hong & Trinh, Quoc-Dat & Le, Minh & Nguyen, Thuy-Ngan, 2021. "Does economic policy uncertainty affect investment sensitivity to peer stock prices?," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 685-699.
    16. Kwabi, Frank Obenpong & Boateng, Agyenim & Wonu, Chizindu & Kariuki, Charles & Du, Anna, 2023. "Political uncertainty and cross-border equity portfolio allocation decisions: International evidence," International Review of Financial Analysis, Elsevier, vol. 87(C).
    17. Mo Chen & Xuhua Hu & Jijian Zhang & Zhe Xu & Guang Yang & Zenan Sun, 2023. "Are Firms More Willing to Seek Green Technology Innovation in the Context of Economic Policy Uncertainty? —Evidence from China," Sustainability, MDPI, vol. 15(19), pages 1-24, September.
    18. Abdin, Joynal & Sharma, Abhijit & Trivedi, Rohit & Wang, Chengang, 2024. "Financing constraints, intellectual property rights protection and incremental innovation: Evidence from transition economy firms," Technological Forecasting and Social Change, Elsevier, vol. 198(C).
    19. Chada, Swechha, 2023. "Economic policy uncertainties and institutional ownership in India," The Journal of Economic Asymmetries, Elsevier, vol. 27(C).
    20. Li, Xiao-Lin & Li, Jingya & Wang, Jia & Si, Deng-Kui, 2021. "Trade policy uncertainty, political connection and government subsidy: Evidence from Chinese energy firms," Energy Economics, Elsevier, vol. 99(C).

    More about this item

    Keywords

    Political turnover; Policy uncertainty; Innovation and entrepreneurship environment; Firm innovation; China;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uwa:wpaper:23-08. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sam Tang (email available below). General contact details of provider: https://edirc.repec.org/data/deuwaau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.