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Bad Money drives out good: Peer abnormal R&D intensity and innovation quality

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  • Lei, Xue
  • Kocoglu, Mustafa

Abstract

Innovation drives long-term growth, yet its financing depends on credible R&D disclosures. When abnormal reporting spreads, it may contaminate the information environment for all firms. Using Chinese listed firms and exploiting exogenous variation from provincial audit environments and a 2018 tax reform, we find peer abnormal R&D intensity is negatively associated with innovation output, with patterns consistent with elevated financing constraints and reduced government subsidies. This association is stronger among high-capability innovators and private firms, suggesting a "bad money drives out good" dynamic. Fostering innovation requires protecting disclosure quality, not merely expanding financial support.

Suggested Citation

  • Lei, Xue & Kocoglu, Mustafa, 2026. "Bad Money drives out good: Peer abnormal R&D intensity and innovation quality," Economics Letters, Elsevier, vol. 259(C).
    • Handle: RePEc:eee:ecolet:v:259:y:2026:i:c:s016517652500638x
    DOI: 10.1016/j.econlet.2025.112801
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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