China Stock Market Listed Firms’ Governance and Innovation Outcomes

Abstract

This study examines the corporate governance and innovation relationship of China listed firms. It aims to contribute to the literature on corporate innovation antecedents, corporate governance of Chinese firms, and its impact on innovation outcomes. Relying on agency and resource-dependence theories to understand corporate governance elements, and patents granted as a measure of successful corporate innovation, this study utilizes a quantitative research methodology and a longitudinal design to leverage data collected from the State Intellectual Property Office of China, the Chinese Research Data Services Platform as well as the China Stock Market & Accounting Database. The study sample includes 3,337 firms with a total 13,182 firm-year observations from the year 2010 to 2019. A better understanding of Chinese corporate governance practices in light of the country’s Securities Regulatory Commission (CSRC) recent reforms is needed, especially considering the necessity to derive a corporate governance theory from China for Chinese firms that has emerged in the literature. We find that board independence is the corporate governance component with the highest predictive significance on innovation, followed by CEO duality, and that board size is not a significant innovation predictor. We also find high incidence of CEO duality among China listed firms.