Impact of ownership types on R&D intensity and innovation performance—evidence from transitional China

Abstract

This paper examines the effects of ownership types on firms' R&D intensity and innovation performance, using a sample of 357,857 Chinese firms from 2005 to 2007. This study finds considerable divergence among Chinese domestic enterprises in terms of R&D intensity and innovation performance. We find that firms owned by the central government are the key drivers for firms' R&D activities, while local government, private and foreign ownerships are negatively related to both R&D intensity and innovation performance. This paper finds significant divergence within government ownership category and argues that China's institutional changes generate varied government ownership groups with different levels of resource endowment, which in turn influence firms' R&D activities.

R&D investment and future firm performance: The role of managerial overconfidence and government ownership

“…This finding comports with Lach (2002), who found that Israeli manufacturing firms increased their R&D investment with government funding. Similarly, Teng and Yi (2017) found that firms owned by China's central government are the key drivers for firms' R&D activities, arguing that such firms are likely to undertake risky R&D investment given a low, soft budget constraint-an important catalyst for R&D investment.…”

“…R&D is a long horizon investment, requiring a long period before realized payoffs (Teng & Yi, 2017). Researchers have confirmed that R&D plays an important role in firm performance.…”

“…However, R&D investment may be underinvested in a free market as the impact of social returns is higher than private returns (Arrow, 1962; Nelson, 1959). Moreover, R&D is a high risk–return strategy and does not yield short‐term returns (Teng & Yi, 2017). Unlike managers, reluctant to invest in long‐term and risky R&D, large shareholders, particularly those with government ownership, have a long‐term interest and, thus, most likely will support R&D. Thus, government intervention is generally crucial as a mechanism to enhance a firm's R&D investments (Aghion, Harris, Howitt, & Vickers, 2001) because the government acts as a helping hand in the country's economic development.…”

How Does R&D Investment Affect the Financial Performance of Cultural and Creative Enterprises? The Moderating Effect of Actual Controller

“…In contrast, some empirical studies argue that, to protect the interests of shareholders, managers-especially the state-owned enterprise (SOE) managers, who have few incentives to push innovation-will underinvest in innovation activities [59][60][61]. Moreover, some studies highlight that different types of government ownership have different levels of resources that affect firms' R&D activities [62]. For example, Minetti et al found that concentration of ownership negatively affects innovation by reducing R&D efforts [55].…”

“…In addition, different types of actual controllers hold various perceptions of R&D investment, which further alter the effect of government subsidies on R&D investment. For instance, Teng and Yi examined the impact of ownership types on R&D intensity and innovation performance, and found a positive association between R&D activities and the innovation performance of firms owned by the central government, but a negative association for firms owned by local governments, as well as those held by private or foreign owners [62]. Managing innovation is critical to enterprises' development [63].…”