Stringent financial regulation and corporate R&D investment: Evidence from a quasi-natural experiment in China

Abstract

Using the first unified and stringent financial regulatory policy for the asset management industry as a quasi-natural experiment, this study identifies the causal effect of New Asset Management Regulation on corporate R&D investment by using the difference-in-differences method. We find that the implementation of NAMR can promote corporate R&D investment, which supports regulatory effectiveness. The mechanism tests show that the implementation of NAMR reduces firm financialization and alleviates financing constraints, thereby increasing corporate R&D investment. The heterogeneity tests show that this effect is more pronounced in non-state-owned enterprises, firms located in the region with a higher degree of marketization, and firms with more media attention. Overall, our findings reveal that the implementation of NAMR has positive effects on corporate R&D investment, which provides fresh insights into the positive effects of stringent financial regulation.