How does the Speed of Pro-market Reform Influence Corporate Innovation: Evidence from China

Abstract

ABSTRACTThis paper analyses how dynamic characteristics of pro-market reform influence corporate innovation. The empirical results show that there is an inverted U-shaped relationship between the speed of pro-market reform and corporate research and development investment. At present, the speed of reform in most central and western provinces of China has yet to be improved, while in some eastern provinces it is marginally too high. We further find that the inverted U-shaped relationship is more significant in non-state-owned enterprises. In addition, the inverted U-shaped relationship is more pronounced for the high-tech industry, especially in non-state-owned enterprises. Our paper is beneficial for the enforcement of pro-market reform. Neither too low nor too high a speed of pro-market reform is good for corporate innovation. At the same time, the nature of ownership and industrial differences should not be ignored.