Symbolic or Substantial? A Firm Response to Government Innovation Policies From Institutional Logic

Abstract

What influences a firm response to government innovation policies? The stakeholder perspective suggests that firms should commit to government substantially because the government is a legitimate and powerful stakeholder. The agency perspective suggests that some firms may instead respond opportunistically. This study draws institutional logic perspective to reconcile these conflicting arguments. We propose that China’s state-owned enterprises, guided by state logic, are more likely to make a substantial response to government innovation policies. Private firms guided by market logic are more likely to make a symbolic response. In the context of China’s Medium- and Long-Term Plan for Science and Technology Development (2006–2020) (MLP), we took a quasi-experimental approach to test the above arguments by using data on publicly listed Chinese companies from 2003 to 2009. MLP stimulated an increased volume of invention patent applications from state-owned enterprises(SOEs), and a larger percentage were granted. Private-owned enterprises(POEs) also submitted more applications, but a smaller percentage were granted. MLP increased POEs’ market-related expense and revenue but not for SOEs. These findings make important theoretical contributions to government innovation policy and stakeholder theory.