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Effectiveness of industrial policy in supporting innovation: the role of internal and external corporate governance mechanism

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  • Yiling Chen
  • Guanju Chen

Abstract

Focusing on supporting the new and high-tech industries, China’s high- and new-technology enterprise (HNTE) programme aims to stimulate the innovation and creativity of enterprises. Centering on China’s HNTE programme, this paper investigates the impact of industrial support policy on firm innovation, and further examines the boundary conditions of policy effectiveness from the perspective of corporate governance. The results show that industrial support policy can significantly promote firm innovation. Moreover, we find that internal governance (executive equity incentive) and external governance (product market competition) have a significant moderating effect on innovation support of industrial policy, and the role of executive equity incentive depends on the level of product market competition. And product market competition and executive equity incentive are complementary in influencing policy effectiveness only at low competition level. The tests of the boundary conditions of policy incentive effectiveness and the complementary relationship between internal and external governance hold interesting implication for research on innovation policy and corporate governance.

Suggested Citation

  • Yiling Chen & Guanju Chen, 2022. "Effectiveness of industrial policy in supporting innovation: the role of internal and external corporate governance mechanism," Applied Economics, Taylor & Francis Journals, vol. 54(19), pages 2181-2193, April.
    • Handle: RePEc:taf:applec:v:54:y:2022:i:19:p:2181-2193
    DOI: 10.1080/00036846.2021.1985074
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    Cited by:

    1. Qian, Qian & Chao, Xiangrui & Feng, Hairong, 2023. "Internal or external control? How to respond to credit risk contagion in complex enterprises network," International Review of Financial Analysis, Elsevier, vol. 87(C).

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