REGIONAL ANTI-CORRUPTION EFFORT, POLITICAL CONNECTIONS AND FIRM INNOVATION EFFORT: EVIDENCE FROM CHINA

Abstract

This paper examines how firm characteristics and local anti-corruption effort moderate the influence of political connections on enterprises’ private R&D investment using data from 2,587 Chinese A-share listed enterprises. Our results show that the local anti-corruption institutional environment significantly moderates the strong relationship between political connections and enterprises’ private R&D investment. Firm characteristics (i.e., firm size and firm age) also show a moderating effect on the relationship between political connection and enterprises’ private R&D investment; larger and older enterprises are more likely to have innovative resources and business cooperation partners, and thus are able to reduce their degree of reliance on political connections and government funding. The results of our study suggest the importance of having a transparent and fair institutional environment for enterprise innovation activities.