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State ownership, political connection, and innovation subsidies in China

Author

Listed:
  • Cheng, Hong
  • Fan, Hanbing
  • Hoshi, Takeo
  • Hu, Dezhuang

Abstract

We examine how a firm's political connection measured by the membership of its CEO in the People's Congress (PC) or Chinese People's Political Consultative Conference (CPPCC) influences its likelihood of receiving the innovation subsidies given by the state. We find that politically connected firms are more likely to receive innovation subsidies. The political connection measured in this way is found much more important than state ownership in explaining the allocation of innovation subsidies. We also investigate if the firms that receive innovation subsidies are more innovative, productive, or profitable. Our results show that the firms that receive innovation subsidies file and receive more patents, but that their patents are not necessarily of high quality. They do not have higher productivity or profitability, either. The results collectively suggest politically induced inefficiency in the allocation of innovation subsidies in China.

Suggested Citation

  • Cheng, Hong & Fan, Hanbing & Hoshi, Takeo & Hu, Dezhuang, 2024. "State ownership, political connection, and innovation subsidies in China," Journal of the Japanese and International Economies, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:jjieco:v:71:y:2024:i:c:s0889158323000424
    DOI: 10.1016/j.jjie.2023.101287
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    More about this item

    Keywords

    Innovation subsidies; State-owned enterprises; Political connection; Patents; Allocation efficiency;
    All these keywords.

    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
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights

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