The Strategy of Speculative Innovation: the Result of Capital Misallocation and Defective Incentive Policy

Financial resource misallocation and government innovation incentives may significantly trigger firms to engage in speculative innovation, prioritizing quantity over novelty. This prioritization hinders the enhancement of their core competencies. We investigate the impact of financial misallocation on enterprises’ speculative innovation using a panel data from Chinese listed enterprises spanning 2016 to 2019. By additionally introducing the firm’s intention to invest in innovation as a mediator and government interventions as moderators, we delve deeper into their interrelationships and mechanisms. Key findings of the study include: (1) Increased financial resource misallocation leads to a greater inclination for firms to engage in speculative innovation, with a one standard deviation increase in misallocation resulting in a 10.8% rise in the ratio of speculative patent filings. (2) Greater financial misallocation stifles firms’ intention to invest in innovation, while a stronger intention can suppress the inclination to innovate speculatively. This indicates a partial mediating role, accounting for over one-fifth of the total effect. (3) Government incentives, such as subsidies and tax preferences, while intended to promote innovation, negatively moderate (i.e., weakened) the dampening effect of firms’ intention to invest in R&D on speculative innovation, thereby inadvertently luring firms towards speculative innovation activities. This study provides valuable insights for formulating innovation incentive policies to foster industrial development. Moreover, it presents new perspectives on how financial market reforms can facilitate novel innovation by firms.