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Foreign institutional ownership and corporate innovation in emerging economies: Heterogeneity analysis of private enterprises and state-owned relative holding enterprises in China

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  • Liangchun Yu

    (Shandong University, Shanda Road.(S))

  • Xinxin Wang

    (Shandong University, Shanda Road.(S))

Abstract

This paper examines the different effects of foreign institutional ownership (FIO) on innovation of private enterprises (PEs) and state-owned relative holding enterprises (SORHEs) based on listed company data during the period 2010–2022 from China. Empirical results suggest that FIO is associated with innovation output positively and significantly only for PEs, while not for SORHEs. For PEs, the positive FIO–innovation relationship appears through increased R&D input, and further is sourced from lifted risk toleration ability, lowered agency cost, and improved internal control. However, for SORHEs, FIO does not influence their R&D input and R&D efficiency, and a possible explanation is that inefficient internal control prevents innovative processes from being implemented smoothly. Additionally, there is no evidence of a non-collinearity link between FIO and innovation, then neither the innovation structure at the country level nor the innovation quality at the firm level improves with FIO. This paper is rare research related to the FIO–innovation nexus and analyzes the heterogeneity between PEs and SORHEs within a unified framework, and our research conclusions provide much important guidance for corporate innovative activities, governance, and reform.

Suggested Citation

  • Liangchun Yu & Xinxin Wang, 2025. "Foreign institutional ownership and corporate innovation in emerging economies: Heterogeneity analysis of private enterprises and state-owned relative holding enterprises in China," Journal of Evolutionary Economics, Springer, vol. 35(3), pages 441-470, July.
    • Handle: RePEc:spr:joevec:v:35:y:2025:i:3:d:10.1007_s00191-025-00906-9
    DOI: 10.1007/s00191-025-00906-9
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    Keywords

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    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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