The Value of Business–Government Ties for Manufacturing Firms’ Product Innovation during Institutional Transition in China

Abstract

This study investigates how firms invest in building and maintaining business–government (B–G) ties when they aim to innovate in regions where, due to institutional transitions, institutional contexts differ remarkably. Using data from the China Enterprise Survey of the World Bank, empirical findings suggest that the influence of B–G ties on Chinese firms’ product innovation is different in distinctive institutional contexts in China. More specifically, during institutional transition, B–G ties become less efficient for facilitating product innovation when regional legal institutions and infrastructural supporting systems in a region are more stable, fair, and efficient. By contrast, during institutional transition, a positive effect of B–G ties on firm product innovation in a region becomes more significant when financial systems are relatively advanced. In addition to this, the value of B–G ties for firm product innovation appears to be more stable when business regulation develops within subnational regions.

Off-balance sheet business development and bank efficiency: A financial innovation matching perspective

“…This is similar to some research [ 113 ]. This is because when the regional financial innovation matching degree is high, there are more shell companies, fewer high-quality enterprises, and less developed corporate innovation activities in economically underdeveloped regions, and a high degree match may direct banks' OBS funds to more subordinate enterprises and shell companies, leading to more risk effects than profit effects, thus exhibiting a negative net effect [ 114 ]. This study also finds that opening a direct marketing bank can weaken the negative impact of OBS on efficiency.…”

Environmental uncertainty, participative corporate political activity and radical innovation in China: a sensemaking perspective

“…The Chinese Government, at all levels, still controls, regulates and allocates a large volume of innovation resources (i.e. tax breaks, R&D subsidies and bank loans) by issuing a series of policies (Sheng et al, 2011;Yang et al, 2019). PCPA represents firms' endeavors to undertake constructive dialog with policymakers for policy amendment and resource allocation.…”

“…Due to its vast and complex economic transition and fierce international competition, China’s institutional and industry environments are changing rapidly (Yu et al , 2020). Specifically, China is undergoing rapid institutional development, and both central and local governments may issue new policies and abort obsolete regulations frequently to guide business operations, leading to considerable regulatory uncertainty (Wang et al , 2016;Yang et al , 2019) . In addition, the Chinese industry market is characterized by the explosive growth of new products, a shorter product life cycle and the leap development of high technology (Yu et al , 2020).…”

“…During the transition period, the Chinese Government often dictates the pace of economic reform by guiding economic activities. To foster economic development and enhance efficiency, the government has frequently launched and modified regulatory policies (Yang et al , 2019). If firms are unclear about future regulatory changes, they will suffer from instability in business income and cost expenditure (Wang et al , 2017).…”

The influence of government affiliations on firm product innovation in a dynamic institutional environment: insights from China

“…Innovation scholars are increasingly devoted to a better understanding of how connections between firms and political authorities may influence firms' innovativeness in emerging markets like China (Gao et al, 2017;Kotabe et al, 2017;Li and Zhang, 2007;Yang et al, 2019). In this research trend, studies have largely concentrated on two types of political connections, that is on personal political ties between firms and authorities (Peng and Luo, 2000;Zhang et al, 2019) and on state ownership of firms (Rong et al, 2017).…”