Financing Constraints, Other People’s Money Strategy, and Enterprise Innovation

Abstract

ABSTRACT Innovation is the driving force of social and economic development, and there is a certain consensus that financing constraints inhibit enterprise innovation. However, the role of Other People’s Money strategy in the link between financing constraints and enterprise innovation is largely ignored. Using the sample of A-share non-financial listed companies from 2008 to 2017, this study first examines the relationship between financing constraints and enterprise innovation and then investigates the role of Other People’s Money strategy in this link. In addition, we explore how the impact of Other People’s Money strategy varies with firm type (state-owned enterprise [SOE] vs. non-SOE) and with the level of regional financial marketization. We find that (1) financing constraints inhibit enterprise innovation, (2) Other People’s Money strategy can mitigate the negative effect of financing constraints on enterprise innovation, and (3) the mitigation role of Other People’s Money strategy is more significant in non-SOEs and in areas with low financial marketization level. The findings of this paper shed new light on the literature of financing constraints, innovation, and Other People’s Money strategy.