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How the sequence of decentralization influences corporate innovation: Evidence from China

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  • Liu, Yawei
  • Su, Qianwen
  • Zhang, Zhaoguo

Abstract

This study examines how decentralization sequences under China’s “Province-Managing-County” reform affect corporate innovation. Using a multi-period difference-in-differences (DID) approach and firm-level data from 1998 to 2013, we find that fiscal-before-administrative (FBA) sequencing enhances innovation quality, while administrative-before-fiscal (ABF) and simultaneous administrative-fiscal (BAF) reforms inhibit it. These effects differ by firm ownership and regional fiscal pressure. Mechanism tests confirm that ABF raises taxes, tightens financing, and increases redundant employment, while FBA alleviates these distortions.

Suggested Citation

  • Liu, Yawei & Su, Qianwen & Zhang, Zhaoguo, 2025. "How the sequence of decentralization influences corporate innovation: Evidence from China," Finance Research Letters, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:finlet:v:84:y:2025:i:c:s1544612325009572
    DOI: 10.1016/j.frl.2025.107698
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