Do Inquiry Letters Curb Corporate Catering Motives of High Sustainable R&D Investment? Empirical Evidence from China

Abstract

Sustainable R&D investment is an important issue for enterprises to obtain core competitiveness in modern society. Government supervision can play a guiding role in the process of developing a competitive advantage in innovation in developing countries. This paper analyzes the impact of the government’s proactive regulatory model, represented by the R&D expense inquiry letters (hereafter, RDILs), on the corporate catering motives of high sustainable R&D investment. The results show that the RDILs have a regulatory effect on the listed companies’ catering motives of high sustainable R&D investment, but this effect is weakened by higher stock price crash risk, lower stock liquidity, and greater market short-selling pressure. Further analysis shows that the regulatory effect of RDILs is achieved by reducing the subsequent level of strategic R&D classification manipulation by the company. Overall, our study finds a monitoring role for inquiry letter supervision on the sustainability of corporate R&D investments. Exchanges in other countries should consider their use.