Political connections, government subsidies and technical innovation of wind energy companies in China

Abstract

Developing wind energy is one of the win win measures in response to climate changes and energy security. In order to promote technical innovation in the wind-energy industry, the government grants various fiscal subsidies to wind-energy companies every year. To acquire these subsidies, enterprises often employ those with political backgrounds as members of the board of directors and board of supervisors. On the one hand, the acquisition of subsidies may indeed promote the technical innovation capacity of enterprises, but, on the other hand, due to the existence of "the grabbing hand", the technical innovation capacity of enterprises may be weakened. We selected 35 Chinese wind-energy listed companies to analyze the relationship between political connections, subsidies and the technical innovation capacity. Results indicate that, political connections to an enterprise weaken its innovative potential and achievement. Moreover, the higher the strength of political connections is, the stronger the negative impact it will bring to the innovative capacity of the enterprise. Modulation of government subsidies, however, can alleviate the negative effects of political connections.