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Political connections and corporate innovation: A stepping stone or stumbling block?

Author

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  • Zhao, Hongjun
  • Ni, Jinlan
  • Liu, Xiaomin

Abstract

The impact of political experience on corporate innovation has been well studied. However, no study has specifically focused on the impact of political intensity on innovation. This paper addresses this gap by constructing an index of political connection intensity and examining the nonlinear effect of political connections on corporate innovation using a dataset of Chinese A-share listed firms from 2008 to 2017. The results demonstrate that the intensity of political connections has an inverted U-shaped impact on corporate innovation. Moreover, this relationship is more pronounced for firms located in the eastern or northern regions, state-owned enterprises, and firms in the mature stage. Further analyses indicate that innovation subsidies and rent-seeking behaviors mediate the inverted U-shaped relationship. Additionally, marketization negatively moderates this relationship, while the anti-corruption campaign in China positively moderates it. These findings strongly confirm that different intensities of political connections have varying impacts on corporate innovation. As a result, this study clarifies the seemingly contradictory conclusions found in the existing literature.

Suggested Citation

  • Zhao, Hongjun & Ni, Jinlan & Liu, Xiaomin, 2024. "Political connections and corporate innovation: A stepping stone or stumbling block?," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 310-326.
    • Handle: RePEc:eee:reveco:v:89:y:2024:i:pa:p:310-326
    DOI: 10.1016/j.iref.2023.07.041
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    More about this item

    Keywords

    Political connections; Corporate innovation; Inverted U-Shaped relationship;
    All these keywords.

    JEL classification:

    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • G3 - Financial Economics - - Corporate Finance and Governance

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