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Fostering Sustainable Development: How Local Fiscal Sustainability Enhances High-Quality Corporate Innovation in China

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  • Man Yuan

    (Accounting School, Capital University of Economics and Business, Beijing 100070, China)

  • Tengfei Yang

    (National Computer Network Emergency Response Technical Team/Coordination Center of China, Beijing 100029, China)

Abstract

High-quality corporate innovation serves as a critical driver for achieving corporate sustainable development. This study bridges the gap between macroeconomic fiscal sustainability and microeconomic innovation quality. Specifically, this paper investigates the influence of local fiscal sustainability on high-quality corporate innovation, examining the underlying mechanisms and heterogeneous effects. Methodologically, data were collected using Python-based retrieval and web-scraping techniques. A multi-dimensional index of local fiscal sustainability was constructed, comprising five key dimensions to quantitatively map provincial fiscal sustainability across China. Corporate innovation quality was measured using patent citation metrics. Employing panel data from A-share listed companies over the 2015–2023 period, we implemented a two-way fixed-effects model for rigorous empirical econometric analysis. The findings indicate a significant positive relationship between local fiscal sustainability and high-quality corporate innovation. This result remains robust after a battery of robustness tests, including the use of instrumental variable (IV) methods. Mechanism analysis reveals that the resource compensation effect is the primary channel. Furthermore, our analysis identifies heterogeneity across varying innovation environments, economic regions, and industry characteristics. The positive influence is particularly pronounced in provinces with stronger intellectual property protection, firms located in the eastern regions, and High-Tech Enterprises. Collectively, the conclusions drawn from this research offer valuable policy implications for strengthening local fiscal sustainability and enhancing high-quality corporate innovation.

Suggested Citation

  • Man Yuan & Tengfei Yang, 2025. "Fostering Sustainable Development: How Local Fiscal Sustainability Enhances High-Quality Corporate Innovation in China," Sustainability, MDPI, vol. 17(21), pages 1-26, October.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:21:p:9427-:d:1778102
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