Can the New Government-Business Relationship Promote Firm Innovation? Evidence from Listed Firms in China

Abstract

This paper firstly summarizes the evolution of the nature of China’s government and business relations, defines the connotation of the new type of government and business relations, and puts forward the research hypothesis based on the institutional theory. Then, it applies the standard negative binomial regression method to test the hypothesis on the basis of “Ranking List of China’s Urban Political and Business Relations” released by China’s Renmin University of China National Development and Strategy Institute as well as the data of A-share listed companies in Shanghai and Shenzhen Exchanges. Finally, it points out the theoretical significance, practical significance and future research directions. The empirical results show that the “close” and “unsullied” government-business relationship can increase the innovation output of firms; besides, compared with non-state-owned firms, the promoting effect of “close” and “unsullied” government-business relationship is smaller in state-owned firms. This paper is the first to empirically explore the impact of the new government-business relationship on firm innovation output. The theoretical significance of this paper is reflected in the following three aspects: Firstly, it deepens the understanding of the function of government-business boundary and government-business relationship in the process of firm innovation. The ideal state is that the government and firms may complement each other. Secondly, it directly evaluates the impact of macro institutional variables on firm innovation. This approach is in line with the research direction advocated by the basic theory of the institution, that is, the institutional environment should not be regarded as a mere research background, but the impact of institutional environmental variables on firm behavior and performance should be directly analyzed（Peng, et al., 2008）. Thirdly, this paper further explores the impact of ownership property on firm innovation. It explores the moderating effect of state-owned equity which is different from discussing the direct effect of state-owned equity on firm innovation output. Future research might be conducted in the following areas: Firstly, the mechanism of impact demonstrated in this paper needs to be tested empirically, and the possible other mechanism of impact remains to be explored. Secondly, the impact of the new government-business relationship on entrepreneurial probability and success rate, foreign direct investment, and local governmental competition model is worth further discussion. Thirdly, this study provides new ideas for further exploring the impact of ownership property on firm innovation. Future research can pay more attention to the different impact brought by other types of institutional shocks on innovation activities and innovation output of firms with different ownership property. Finally, the size of firms and the regional culture may affect the effect of the new government-business relationship on the innovation output of firms. In the future, we may try to explore the moderating effect of these two factors.