Nonlinear effect of financial efficiency and financial competition on heterogeneous firm R & D: A study on the combined perspective of financial quantity expansion and quality development

Abstract

Manufacturing firm data and district financial quantity and quality indicators for 2005-2007 combined with heterogeneous firm characteristics were used with a threshold panel to study the effect of financial inefficiency on firm R & D and the financial boundaries of efficiency improvement. The results show that: (1) extensive financial quantity expansion cannot support high innovation efficiency R & D (Research and Development) activities in private enterprises, low- and medium-technology enterprises, and underdeveloped area enterprises, as it causes financial inefficiency problems and a shortage of R & D inputs; and (2) financial efficiency and financial competition have nonlinear effects on firm R & D. Financial inefficiency and either low or excessive financial competition result in a lack of highly efficient firm R & D. Only improvements in financial efficiency and moderate competition can significantly promote firm R & D. The results of this study reveal an important way to improve the influence of financial inefficiency on firm R & D by moving away from simply expanding financial quantity to promoting quality instead.