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How do economic sanctions affect corporate innovation? Lessons from China

Author

Listed:
  • Yin, Hua-Tang
  • Wen, Jun
  • Ni, Guo-Hua
  • Chang, Chun-Ping

Abstract

This paper employs a panel dataset of Chinese listed firms to investigate the impact that economic sanctions have on corporate innovation, along with its mechanisms and conditionalities. It is found that economic sanctions exert a significant negative effect on corporate innovation output. Such an effect mainly stems from the decline in innovation efficiency caused by economic sanctions, rather than a reduction in innovation inputs. Further exploration for their mechanisms reveals that sanctions-induced perceived uncertainty weakens entrepreneurial spirit, exacerbates investor myopia, and reduces firms' slack resources, thereby lowering innovation efficiency. Moreover, our heterogeneity analysis with respect to personnel and incentive arrangements suggests that stable executive teams, greater employee profit sharing, and better employee benefits enhance firms' resilience to innovation challenges under sanctions. Going a step further, we examine the conditionalities regarding institutional quality. An inclusive, open, and fair competitive business environment helps mitigate the adverse effects of economic sanctions on corporate innovation.

Suggested Citation

  • Yin, Hua-Tang & Wen, Jun & Ni, Guo-Hua & Chang, Chun-Ping, 2026. "How do economic sanctions affect corporate innovation? Lessons from China," Technological Forecasting and Social Change, Elsevier, vol. 224(C).
    • Handle: RePEc:eee:tefoso:v:224:y:2026:i:c:s0040162525005475
    DOI: 10.1016/j.techfore.2025.124516
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    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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