Impact of financial regulation on corporate technological innovation: Evidence from China’s A-share listed firms

Amid China’s transition to high-quality economic development, the link between financial regulation and corporate technological innovation has become increasingly critical. This study investigates how enhanced financial regulation shapes firms’ innovation strategies and outcomes. Drawing on a comprehensive panel dataset of A-share listed firms from 2007 to 2023, we find that a 1 % rise in regional financial regulatory expenditure corresponds to a 3.2 % increase in the logarithm of patents granted, suggesting a significant positive effect of regulatory intensity on innovation performance. Mechanism analysis reveals two key channels through which financial regulation operates. On the one hand, stricter oversight alleviates financing constraints, thereby stimulating research and development (R&D) investment and strengthening firms’ capacity for independent innovation. On the other hand, regulation curtails excessive financialization by raising the costs of speculative financial activities and guiding resources back toward productive sectors, thus improving long-term innovation incentives. Heterogeneity analysis further indicates that these effects are more pronounced among nonstate-owned enterprises, which face greater financial frictions, and in eastern and central regions with relatively developed financial markets and regulatory infrastructures, while western regions show weaker responses. Robustness checks using instrumental variable regression, propensity score matching, and Heckman two-step procedures confirm the validity of the findings. Overall, the study provides novel empirical evidence that effective financial regulation can serve as both a constraint and an enabling mechanism, fostering technological innovation, mitigating systemic financial risks, and supporting China’s broader goals of industrial upgrading and sustainable economic growth.